Hotels across India are facing a fresh wave of Goods and Services Tax (GST) scrutiny, as authorities issue retrospective demand notices amounting to crores of rupees. The notices allege underpayment of GST on restaurant services provided by hotels, sparking widespread concern within the hospitality industry.
The Issue: Linking Room Tariffs with Restaurant GST Rates
According to GST rules, hotels charging room tariffs above ₹7,500 per night are classified as “specified premises.” For such establishments, restaurant services attract an 18% GST rate, instead of the standard 5%. Hotels charging tariffs below this threshold are liable to pay 5% GST on restaurant services.
Authorities allege that many hotels continued paying only 5% GST on restaurant services even when their tariffs exceeded the ₹7,500 benchmark, leading to the issuance of hefty retrospective tax demands.
For instance, in Pune, the Directorate General of GST Intelligence (DGGI) reportedly served a notice to a hospital-cum-hotel for underpaying restaurant service taxes between FY 2020–21 and FY 2022–23. Another group of hotels is said to have received demand notices collectively exceeding ₹44.91 lakh for similar issues during the October 2021–July 2023 period.
Industry Cries Foul: “Unfair and Impractical”
Industry associations argue that linking restaurant tax rates to room tariffs is both inequitable and impractical.
“This provision is not about tax evasion but arises from long-standing ambiguities in GST law and lack of awareness,” said K. Syama Raju, President of the Federation of Hotel & Restaurant Associations of India (FHRAI). “Many hotels have now been penalised retrospectively for compliance issues stemming from confusion, not deliberate wrongdoing.”
Legal experts have also raised constitutional concerns. Abhishek A. Rastogi, founder of Rastogi Chambers, noted that such provisions need to be tested on proportionality grounds. “Taxing restaurants at the higher rate just because the hotel room tariff exceeds ₹7,500 leads to disproportionate and absurd results,” he said.
Impact on Walk-In Diners
Hotel operators worry that the current framework unfairly burdens walk-in customers who dine at hotel restaurants but do not book rooms.
“Penalising restaurant services based on room tariffs discourages diners and impacts business fairness,” said Laxman Kariya, Managing Director, St. Laurn Hotels and Resorts.
Long-Standing Ambiguity
The hospitality sector has long struggled with ambiguities surrounding “declared tariff” and “value of services received,” leading to frequent disputes with tax authorities. Industry representatives insist that these notices highlight the urgent need for clearer GST provisions that ensure fairness and simplicity in compliance.
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