Last updated: February 25th, 2020 5:01 PM

Incentives for Hotel Industry

Hotels play a vital role in the tourism industry, and the tourism industry is one of the largest industry in India.  The World Travel & Tourism Council calculated that tourism the tourism industry in India generated INR 6.4 trillion or 6.6% of the nation's GDP in 2012. The tourism industry also supports 39.5 million jobs or 7.7% of the total employment of the country. The Indian tourism industry is ranked third among the fastest-growing tourism industry in the world and is predicted to grow at an average annual rate of 7.9% from 2013 to 2023. This gives India the third rank among countries with the fastest-growing tourism industries over the next decade. Therefore in an effort to support the growth of the tourism industry and generate further employment, the Government of India provides a number of incentives for the hotel industry in India. In this article, we look at the subsidies and incentives for the hotel industry in India.

Export Promotion Capital Goods Scheme (EPCG)

The Export promotion capital goods scheme (EPCG) scheme is administered in India by the Directorate General of Foreign Trade, Ministry of Commerce and Industry. Under this scheme, customs duty is levied on import of capital goods for a hotel in India at a concessional rate of 3%, subject to an export obligation equivalent to 8 times of duty saved on capital goods imported under EPCG scheme, to be fulfilled in 8 years reckoned from Authorization issue date. Capital goods shall include spares (including refurbished/ reconditioned spares), tools, jigs, fixtures, dies and moulds. The DGFT has also clarified through a notification that hotels could import furniture under the export promotion capital goods (EPCG) scheme. 

Import motor cars, sport utility vehicles or all-purpose vehicles by hotels, travel agents, tour operators or tour transport operators and companies owning/operating golf resorts, at a concessional rate of 3% customs duty, subject to:

1. total foreign exchange earning from hotel, travel & tourism and golf tourism sectors in current and preceding three licensing years is Rs.1 .5 crores or more.
2. ‘duty saved’ amount on all EPCG Authorizations issued in a licensing year for import of motor cars, sports utility vehicles/ all-purpose vehicles shall not exceed 50% of average foreign exchange earnings from hotel, travel & tourism and golf tourism sectors in preceding three licensing years.
3. vehicles imported shall be so registered that the vehicle is used for tourist purpose only. Submit a copy of the registration certificate to the RA as a confirmation of import of vehicle. However, parts of motor cars, sports utility vehicles/ all-purpose vehicles such as chassis etc. cannot be imported under the EPCG Scheme.

To know about Service Tax for the Hotel Industry

100% Foreign Direct Investment (FDI) in Hotels through Automatic Route

It permits 100% FDI to the hotel industry through the automatic route. The automatic route connotes no requirement of any prior regulatory approval but only post facto filing/intimation with the RBI. The term hotels also include restaurants, beach resorts, and other tourist complexes providing accommodation and/or catering and food facilities to tourists. Tourism-related industry includes travel agencies, tour operating agencies and tourist transport operating agencies, units providing facilities for cultural, adventure and wildlife experience to tourists, surface, air and water transport facilities to tourists, leisure, entertainment, amusement, sports, and health units for tourists and Convention/Seminar units and organisations.

Export House Status

The Government of India recognises Manufacturer exporters, Service providers, Export Oriented Units earning consistent levels of foreign exchange as Export House, Trading House, Star Trading House and Super Star Trading House and provides them with a number of benefits to support export growth. Under this scheme, it recognizes hotels, travel agents, tour operators as an export house or trading house or star trading house or superstar trading house. Some of the facilities a Star Export House shall be eligible for include, license/certificate/permissions and Customs clearances for both imports and exports on self-declaration basis, fixation of input-output norms on priority within 60 days, exemption from compulsory negotiation of documents through banks, 100% retention of foreign exchange in EEFC account, enhancement in normal repatriation period from 180 days to 360 days, entitlement for consideration under the Target Plus Scheme and exemption from furnishing of Bank Guarantee in Schemes under this policy.

Also, hotels of one-star and above (including managed hotels and heritage hotels) approved by the Department of Tourism, and other Service providers in the tourism sector registered with the Department of Tourism, shall be entitled to duty credit equivalent to 5% of the foreign exchange earned by them in the preceding financial year. Stand-alone restaurants will be entitled to duty credit equivalent to 20% of the foreign exchange earned by them in the preceding financial year. In the case of one and two-star hotels and stand-alone restaurants, the foreign exchanged earned through International Credit Cards and sources as may be notified only shall be taken into account for the purposes of computation of duty credit entitlement under the scheme.

Served from India Scheme

Government of India has introduced "Served from India Scheme" to facilitate exporter of various type of services. The objective of this scheme is to accelerate growth in export of services so as to create a powerful and unique 'Served From India' brand, instantly recognised and respected the world over. Under this scheme, it entitles the Hotels, Restaurants, Tourism and Transport related Services with Duty Credit Scrip. The usage of "Duty Credit Scrip" is mainly for import of any capital goods including spares, office equipment and professional equipment, office furniture and consumables, it is part of their main line of business. In the case of hotels and stand-alone restaurants, the usage of duty credit entitlement is mainly for the import of food items and alcoholic beverages.

Hotels of one-star and above (including managed hotels) and heritage hotels approved by Department of Tourism and other Service providers in tourism sector registered with Department of Tourism shall be entitled to 5% while Stand-alone restaurants are entitled to 10% of foreign exchange earned by them in preceding financial year.

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