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Home Articles Goods and Services Tax - GST Dr. Sanjiv Agarwal Experts This


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Dr. Sanjiv Agarwal By: Dr. Sanjiv Agarwal
June 14, 2022
All Articles by: Dr. Sanjiv Agarwal       View Profile
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Indian economy, like any other economy on the globe presently, suffers from Covid pandemic impact, slower economic growth and high inflation. These factors are of concern to all stakeholders. Even major agencies like IMF, World Bank, Reserve Bank and rating agencies have expressed their concern and have even recently downgraded the growth projections. Amid this scenario, while all major sectors in economy are under pressure, sectors such as hospitality and tourism face the brunt. Hotels and Restaurants are facing issues, both on inward and outward supply side of their businesses. Taxation policy add to their woes.

On one end, due to pandemic, businesses have suffered a lot, with dip in both all formats of business-room sales, restaurant sales and banquet sales, there is an enhanced cost for most of the inputs and input services. In some cases, there is no input tax credit available, say in case of cooking gas which is outside the GST net.

A major anomaly makes the hospitality sector more vulnerable, that is the GST rate tariff and conditions in case of restaurants. The GST is charged on restaurants at following rates:

Room Tariff



Hotel with declared room tariff of above Rs. 7500


18% (ITC allowed)

Hotel with Rs. 2500 to upto 7500


5% (No ITC)

Hotel with Rs. 1000 – 2500


5% (No ITC)

< below Rs. 1000


5% ( No ITC)

Standalone Restaurants


5% (No ITC)

Looking to above matrix, there appears to be a huge discrimination with hotels in all categories except the hotel with room tariff of Rs. 7500 or more. In none of the other cases, input tax credit is allowed, though the GST rate is 5 percent. In many cases, restaurants and hotels suffer due to non-ITC allowance. This disparity is one of the major reasons of great suffering meted to this industry.

Recenlty, Federation of Hotel and Restaurant Association of India (FHRAI) also asked demanded from the union government to take up simplification of goods and services tax (GST) rules to enable the establishments falling under the hospitality segment to avail Input Tax Credit (ITC). It suggested that all F&B revenue of hotels be de-linked from their hotel room tariff slabs and allowed to charge GST at 5 per cent without ITC under the composite scheme and 12 per cent GST with ITC.

Such restaurants suffer huge amount on account of forgone input tax credit on taxes paid on input services and inputs. Not only this, these restaurants also suffer on account of alcoholic beverages as alco-beverages are again out of GST network. As such, they don’t get benefit of input tax and such ITC foregone also adds to cost eating the bottom lines.

ITC, if allowed could serve the objective of GST itself by eliminating cascading effect of tax and allowing for input tax credit. It would also lead to cost reduction for customers and contribute in a better way to top line as well as bottom line. To put it holistically, it would result in win-win for all stakeholders including the revenue. When demand goes up, it would also have positive ripple effects on employment and entire ancillary services in relation to hospitality industry.

Through alco-beverages also deserve to be a part of GST umbrella, it may not be politically feasible today. But Government still earns tax revenue from alco-beverages by way of not allowed input tax credit- unfair for industry, legal for tax collectors.


By: Dr. Sanjiv Agarwal - June 14, 2022



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