INDIAN HOSPITALITY SECTOR
Hospitality industry is a versatile field encompassing accommodation, entertainment, food, and beverages, accounting, event management and above all guest satisfaction. Earlier, the hospitality sector like every other sector in the Indian Economy was liable to pay multiple taxes like Service Tax, Luxury Tax and Vat. Although abatement of 40% on service tax was allowed on the tariff value and in case of restaurants, there was 60% abatement on service tax.
Under GST, the hospitality sector stands to reap the benefits of standardized and uniform tax rates as it has abolished all the other taxes.
Supply of Services
As per Schedule II of CGST Act, composite supply of service or goods, being food or any drink (other than alcohol) shall be treated as a supply of services. For instance, complementary food (like breakfast) was taxed separately under VAT, but now it will be taxed under composite supply.
Now Composite Supply means supply of two or more taxable supplies of goods or services or both which are naturally bundled with each other in the ordinary course of business and one of which is principal supply.
We can understand this with the help of an example:-Suppose goods are packed and transported with insurance, now supply of goods, packing materials, transport and insurance is a composite supply and supply of goods shall be the principal supply. GST rate on goods shall be applicable on whole amount charged for all these services.
GST Rates
Restaurant Services
- Non-AC restaurant and not having license to serve liquor – 12%
- Restaurants having license to serve liquor whether AC or Non AC – 18%
- AC restaurants – 18%
Hotel and Lodges
- Tariff less than Rs.1000 – Exempt
- Tariff more than Rs.1000 but less than Rs.2500- 12%
- Tariff more than Rs.2500 but less than Rs.7500- 18%
- Tariff more than Rs.7500 – 28%
We can compare the taxability for Hotel Accommodation with complementary Breakfast as follows:-
| Particulars | Rate | Pre GST | Post GST |
|---|---|---|---|
| Basic Tariff | 3000 | 3000 | |
| Breakfast | 500 | 500 | |
| Luxury Tax | |||
| (on Stay) | 10% | 300 | -/td> |
| Service Tax | |||
| (15% with 40% Abatement) | 9% | 270 | – |
| VAT (on food) | 14.5% | 73 | – |
| GST | |||
| (Tariff more Than Rs.2500) | 18% | – | 630 |
| TOTAL | 4143 | 4130 | |
Input Tax Credit
ITC shall not be available in respect of supply of food and beverages except where an inward supply of goods or services of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services.
Eligibility of Composition Scheme
Every registered person providing restaurant services where aggregate turnover does not exceed Rs.75 lakhs in a preceding financial year is eligible to opt for composition scheme. Under this scheme, he shall pay tax at the rate 5% (CGST 2.5% and SGST 2.5%) on total turnover. All other provisions are applicable as per the scheme.
Alcohol outside the ambit of GST
According to the provision of CGST the tax shall be levy on all intra state supply of Goods and Service or both except on the supply of alcoholic liquor for human consumption on the value determined and the tax rate not more than 20% and it shall be charged separately on the same GST invoice
For Instance:-
| Particulars | Amount |
|---|---|
| Food item | 1000 |
| Alcohol | 500 |
| Subtotal | 1500 |
| Vat rate @ 20% | 100 |
| Service Charge @10% | 100 |
| CGST @ 9% | 100 |
| SGST @ 9% | 100 |
| Total | 1898 |
Therefore, liquor will attract VAT imposed by your State. So if you order alcoholic beverage and food, you have to pay GST on food and VAT on alcoholic beverage.
Supply of goods v/s Supply of services
To understand this, we can consider an example of a sweet shop:-
Now, if a person buys sweets i.e. goods then the supplier will charge GST @5% but if the same person consumes the sweet in the shop itself i.e. he takes the restaurant services then it will get covered under supply of services and GST shall be levied as per the prescribed rates(for Restaurant Services).