Hotel GST – After the reduction in GST rates on hotels, most travelers were expecting hotel stays to become cheaper. But this does not seem to be happening. After the reduction in GST rates on hotel rooms from September 22, travelers were expecting hotel stays to become cheaper. But in reality, this did not happen. Many travelers complained on social media that there was no significant difference in their hotel bills.
One user, Harshdeep Rupal, said he regularly stays at a hotel in Amritsar, where a room typically costs Rs 5,500 to Rs 6,500 per night. Now that the GST on rooms up to Rs 7,500 has been reduced from 18% to 5%, he thought the bill would be lower. But his bill remained at Rs 5,581. Meaning, there was no difference.
While the government has reduced GST, it has also introduced a significant change. Hotels will no longer benefit from input tax credit (ITC). Previously, hotels and online travel agencies like MakeMyTrip and Goibibo used to offset GST paid on their expenses using ITC, allowing them to offer discounts to customers. But now, under the new rules, ITC is no longer allowed in the 5% GST slab. This means that hotel owners can no longer reclaim taxes paid on electricity, rent, service, furniture, or other expenses. As a result, they are charging customers the same additional expenses, resulting in no reduction in the total bill.
The Federation of Hotel and Restaurant Associations of India (FHRAI) has written to the government, stating that mid-market and budget hotels are most affected by this change. They argue that GST expenditure on hotel projects is now non-creditable, meaning it has become a tax burden.
FHRAI President Surendra Kumar Jaiswal said that if a hotel undertakes renovation worth Rs 1 crore, then now GST of Rs 18 lakh will not be refunded on it, due to which expenses will increase and profits will decrease. Tax experts say this change could stunt the growth of the hotel sector. Budget and mid-segment hotels will now face higher expenses, eliminating the possibility of lowering room rates.
According to FHRAI, domestic tourism in India is growing rapidly again, with domestic spending expected to surpass ₹16 lakh crore by 2024. But if the tax burden on the hotel industry continues to increase, this growth could be halted and millions of jobs could be affected.
