Restaurants in hotels to levy GST on declared tariff, not on actual tariff

You may have to shell out more for eating at the restaurants of the hotel you are put up in going by the latest decision of the GST Council. Restaurants located within the hotel premises will continue to levy GST based on the declared tariff for room, resulting in higher tax rate than what the actual room tariff prescribes for.

This will happen due to changes in tax calculation method for room tariff on the basis of a notification dated July 26. The notification, issued to implement decisions taken by the GST Council on July 21, has substituted the word ‘declared tariff’ with ‘value of supply’ for calculating GST on room tariff. In simple term, the rate of tax on accommodation service will be based on transaction value instead of declared tariff.

For example, if the declared room tariff is ₹8,000, but actual tariff realised is ₹6,000, then rate of GST on accommodation will be 18 per cent and not 28 per cent. However, tax calculation norms for restaurants located in the same premise remain unchanged —GST for dining in the same hotel restaurant will be based on declared tariff.

Regulations prescribe that GST rate for restaurants in hotel premises having room tariff of less than ₹7,500 a day will attract GST of 5 per cent without input tax credit, while tariff of more than ₹7,500 and above will fall under 18 per cent rate with full input tax credit. In other words, though the actual room tariff is ₹6,000, the customer will be required to pay GST on food at a rate prescribed for tariff ₹7500 or above.

Complicate accounting

So, if the customer is paying ₹6,000 as room tariff, he/she would have been entitled to enjoy the dining facility in the restaurants located in the same premise at 5 per cent GST. However, he/she will be required to pay 18 per cent on the food bill also as declared or published tariff is ₹8,000. Experts feel that these will make accounting more complicated for the hotel industry and could also lead to dispute with the customer.

Executives with hotel industry are still trying to decode the new notification. However, they do admit that they may be required to maintain separate GST registers for accommodation and room tariff.

Anita Rastogi, Partner (Indirect Tax) with PwC, said it is heartening to note that the industry request has been accepted and now hotels are required to pay tax on the transaction value for the room accommodation and the concept of declared tariff has been removed. But, restaurants in the premises of hotels are still required to grapple with the issue of declared tariff.

“We have a situation where 5 per cent GST without input tax is applicable for restaurants in hotels where declared tariff is less than ₹7,500. If the declared tariff is above ₹7,500 then it is 18 per cent GST with credit. An ideal scenario would have been that no linkage of tax rates be done with declared tariff even for restaurants in the premises of hotels,” she said.

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