The Ministry of Finance, through its frequently asked questions, has reiterated that hotels with room rates up to Rs 7,500 will not have input tax credit (ITC) under the 5 per cent GST slab.
“Suppliers of hotel accommodation service where the value of a unit of accommodation is less than or equal to Rs 7,500 per unit per day shall have to charge GST at 5 per cent without ITC on such units. It is a mandatory rate prescribed for such services, and the option to pay GST at 18 per cent with ITC is not available for such units,” the ministry stated in response to a query on whether hotels could supply such rooms at the 18 per cent ITC-inclusive slab, according to the Press Information Bureau (PIB).
Earlier, room rates up to Rs 7,500 were taxed at 12 per cent with ITC. Secretary general of the Hotel Association of India (HAI), told Business Standard that the body has already written to the Ministry of Tourism to facilitate discussions for possible changes. HAI had earlier said the removal of ITC would be detrimental for hotel companies in the mid-scale and budget segments and may act as a disincentive for investment and expansion.
He added that the association is gathering data to support its case on the impact of not including ITC in the slab but said hotels would mostly have to absorb the additional costs.
General secretary of the Federation of Associations in Indian Tourism and Hospitality (FAITH), agreed that hotel operating costs will rise. However, he said hotels would need to decide carefully whether to pass on the benefit of recent GST announcements to customers.
“The hotels are also requesting the government to give ITC on the 5 per cent tax slab for room rates up to Rs 7,500 as a special case,” he added.
