GST on Hotel and restaurant services

India's hospitality and restaurant sector plays a pivotal role in economic growth, supporting millions of jobs and contributing significantly to GDP. Here's a comprehensive breakdown of the sector's dynamics, challenges, and GST compliance updates:

What Defines a Hotel or Restaurant Service?

• A hotel is a commercial establishment offering lodging, dining, and other services like meeting rooms and stores, to travelers and permanent residents.

• Restaurant services include serving food or drinks for consumption on-site, takeaway, or door delivery, including services provided by cloud kitchens and central kitchens.

Sector Snapshot

🏨 Hotels in India: Over 53,000 Hotels .

🍴 Restaurants:

• Organized Sector: More than 70 lakh establishments.

• Unorganized Sector: Approximately 2.3 crore establishments.
  👩‍🍳 Employment: This sector supports nearly 10 crore people across the country.

GST Rates on Hotel and Restaurant Services

Hotels and Accommodations

• Room rent up to ₹7,500: 12% GST

• Room rent above ₹7,500: 18% GST

Restaurants

1. Standalone restaurants, catering services, and food delivery: 5% GST without ITC

2. Restaurants in hotels:

   • Room tariff < ₹7,500: 5% GST without ITC

   • Room tariff ≥ ₹7,500: 18% GST with ITC

Composition Scheme for Restaurants

Restaurants can opt for 5% GST under this scheme, with restrictions like:

• Turnover not exceeding ₹1.5 crore.

• No interstate supply or sale of alcohol.

• No input tax credit (ITC).

Challenges: How Are Taxes Being Evaded?

Some businesses are under scrutiny for practices like:

• Underreporting turnover and cash transactions.

• Misusing ITC and exemptions.

• Incorrect application of mixed supply taxes (e.g., accommodations with meals).

• Not registering despite meeting GST thresholds.

Case Studies of Non-Compliance

📍 Hotels:
A survey on a Varanasi hotel revealed:

• Complimentary services like car pickups and meals were billed separately with different GST rates.

• Post-audit, the business deposited ₹160 lakh in back taxes.

📍 Restaurants:
A restaurant in Uttar Pradesh charged 5% GST but wrongly claimed ITC applicable only at 18% GST, resulting in ₹50 lakh in corrections.

Key Guidelines for GST Compliance

1. Ensure registration for all eligible establishments, including those connected to online platforms.

2. Properly classify mixed supplies (e.g., meals and accommodations) and apply the highest applicable tax rate.

3. Maintain accurate billing and inventory for taxable supplies, especially for gift hampers and cooked food.

4. Follow proper invoicing practices for e-commerce operations.

The Road Ahead for the Industry

With a growing focus on tourism, government support, and strict tax compliance, the hospitality and restaurant industry is poised for significant transformation. Addressing compliance challenges will unlock new opportunities for growth and innovation.