GST impact: Hotel rates set to come down

There is good news for those bit by the travel bug who prefer staying at mid-market to luxury hotels. After the GST Council on Sunday, tweaked the tax incidence on hotel tariffs, room rates at such hotels are set to come down.

The GST Council led by Union Finance Minister Arun Jaitley in its 17th meeting, in a relief to the hotel industry, increased the threshold for the 28 per cent tax bracket to Rs.7,500 from Rs.5,000. This means that an 18 per cent GST will be levied on rooms with tariff between Rs.2,500 and 7,500. According to the hotel industry, currently for this tariff range, a tax of 21.3 per cent is levied.

The 3 per cent tax discount will be passed on to the customers, industry insiders said.

The Federation of Hotels Restaurants Association of India (FHRAI), the apex body for hotels and restaurants in the country, had earlier made a plea for a uniform GST rate at 12 per cent. The association had also appealed to the government to reconsider the luxury tax threshold of Rs.5,000 and enhance it suitably. “Across the world Rs.5,000 cannot be considered luxury today,” the body had said.

There’s also some cheer for those who like to dine at five-star and luxury hotels. Those bills are likely to get cheaper as well. On Sunday, the GST on restaurants in five-star hotels was reduced to 18 per cent from 28 per cent, bringing it at par with standalone air-conditioned restaurants.

Hotel stocks rallied in Monday’s trade, surging as much as 10 per cent. Royal Orchid Hotels and Advani Hotel & Resorts both gained nearly 10 per cent. Other hotel stocks like Mahindra Holidays & Resorts, ITC, Taj GVK Hotels & Resorts, Hotel Leela Group Venture, ITDC, Indian Hotels Company, Asian Hotels North Limited – all traded in the green.

Under the GST regime that’s set to roll out from July 1, if the hotel room rate is less than Rs 1,000, it would be exempt from taxes. For room rates in the range of Rs 1,000 – Rs 2,500, the tax incidence would be 12 per cent.

GST is touted as the single biggest tax reform since India’s independence in 1947 and is expected to add 2 per cent to the country’s GDP (gross domestic product).