Simplifying GST on Hotel, Restaurant & Outdoor Catering Services

The Indian hospitality and food service industry thrives on providing exceptional experiences, but navigating the complexities of GST can often turn into a back-of-house headache. From budget hotels to luxury accommodations, standalone restaurants to elaborate outdoor catering services, the applicable GST rates and Input Tax Credit (ITC) eligibility vary significantly. This article aims to demystify the GST maze for hoteliers, restaurateurs, and caterers, offering a clear and concise guide to ensure smooth compliance and maximize tax benefits.

Types of Services and Applicable GST Rates:

Hotels:

*Budget Hotels (Room Tariff ≤ Rs. 1,000 per day): Exempt from GST

*Hotels (Room Tariff > Rs. 1,000 but ≤ Rs. 7,500 per day): 12% GST with Input Tax Credit (ITC) available.

*Luxury Hotels (Room Tariff ≥ Rs. 7,500 per day): 18% GST with ITC available.

Restaurants:

*Standalone Restaurants or Restaurants within Budget Hotels: 5% GST without ITC (composition scheme option available for restaurants with turnover up to Rs. 1.5 crore).

*Restaurants within Hotels (Room Tariff > Rs. 7,500 per day): 18% GST with ITC available.

Outdoor Catering Services:

*Standalone or within Budget Hotels: 5% GST without ITC (composition scheme option available with turnover restrictions).

*Within Hotels (Room Tariff > Rs. 7,500 per day): 18% GST with ITC available.

Understanding Input Tax Credit (ITC):

ITC allows businesses to claim credit for GST paid on purchases used for providing taxable services. This effectively reduces the overall GST liability. However, the 5% GST rate for standalone restaurants and outdoor catering does not allow ITC claims.

Benefits of opting for the Composition Scheme:

*For restaurants with a turnover below Rs. 1.5 crore, the composition scheme offers a simplified tax filing process with a lower tax rate of 5%.

*One thing to note here is, in Composition Scheme you cannot collect GST from customer whereas in Normal Scheme you can collect GST from customer.

*Input Tax Credit is not available to restaurant in both the cases.

*In simple words, opting for composition scheme it will reduce the Tax Filing compliance compared to normal scheme but GST will have to be borne by Restaurant.

Simplified Table of GST Rates:

Service Type                                              Room Tariff (per day)                                              GST Rate                                               ITC Eligibility

Budget Hotels                                                        ≤ Rs. 1,000                                                        Exempt                                                Not Applicable

Hotels                                                                    > Rs. 1,000 but ≤ Rs. 7,500                                  12%                                                           Yes

Luxury Hotels                                                            ≥ Rs. 7,500                                                        18%                                                          Yes

Standalone Restaurants                                                    –                                                                  5%                                                           No

Restaurants (in Hotels)                                              > Rs. 7,500                                                        18%                                                         Yes

Standalone Outdoor Catering                                            –                                                                  5%                                                          No

Outdoor Catering (in Hotels)                                     > Rs. 7,500                                                          18%                                                        Yes

Reference: Notification No. 20/2019-Central Tax (Rate) dated 30 September 2019

Conclusion: Navigating GST for hotel, restaurant, and catering services is crucial for compliance and maximizing tax benefits. By understanding the applicable rates, ITC eligibility, and the advantages of the Composition Scheme, businesses in this sector can streamline their operations and ensure smooth tax compliance. It’s imperative for stakeholders to stay updated with relevant regulations to adapt to changes effectively and leverage opportunities for growth in this dynamic industry.

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