Last updated: March 18th, 2020 2:50 PM

Service Tax for Hotel Industry

Hotels, inns, commercial guest houses, serviced apartments and other businesses providing temporary stay facilities, play a major role in the travel and tourism industry. The accommodation services provided by such businesses come under the service tax regulations. In this article, we provide a detailed assessment of service tax for hotel industry.

Service Tax vs Service Charge

Service tax is a tax levied by the Central Government of India and all services provided by a service provider except those notified in the negative list are liable for payment of service tax. On the other hand, service charge is a charge levied by the hotel for providing a service. While service tax collected is remitted with the Government, service charge collected is retained by the hotel itself. Hence, the levy of service charge is at the discretion of the hotel management, while the levy of service tax is a mandatory requirement prescribed by the Central Government.

Applicability of VAT for Hotels

VAT or Value Added Tax is a tax levied on sale of goods and products. The sale of food products by a restaurant in a hotel attracts VAT under the relevant state laws. However, the accommodation services provided by a hotel do not attract VAT.

Applicability of Service Tax for Hotels

By way of a service tax notification, the Central Government has exempted renting of rooms with a declared tariff of less than Rs.1000 from the applicability of service tax. Declared tariff is the charges for all amenities provided in the room like furniture, air-conditioner, etc., without including any discount offered on the published charges.

In addition to the exemption available for rooms with a declared tariff of less than Rs.1000, service tax is also not applicable for those hotels providing taxable services of less than Rs.10 lakhs under the exemption available for small service providers.

Service Tax Rate for Hotels

Service tax is applicable only on 60% of value of rent of room, inn, guest house, clubs or other commercial places meant for lodging purposes. However, when service tax is paid only on 60% of the total value, no CENVAT credit or Input Credit can be claimed by the service provider.

Example: Hotel Service Tax

In case a hotel has a declared tariff of Rs.1500 per room per night, provides a discount of Rs.600 and charges Rs.900 to the customer, then the service tax applicable would be as follows:

Service Tax Exemption: Though the charge levied to the customer is Rs.900, service tax would still be applicable as the declared tariff is Rs.1500, which is above the service tax exemption threshold.

Service Tax Applicable: Service tax would be charged on only the actual amount paid by the customer. Hence, service tax would be calculated on Rs.900, which is the amount paid by the customer.

Service Tax Rate: Service tax would be levied only on 60% of the amount paid by the customer.