Goods & Services Tax Law in India is a comprehensive, multi-stage, destination-based tax that will be levied on every value addition. GST Law has replaced many indirect tax laws that previously existed in India which leads to a high-cost and inefficient tax structure prone to evasion and revenue leakage.

The hospitality and tourism industry is one such sector in the economy that is deliberating over the new tax regime. Hospitality is one of the most competitive and steadily growing industries in the country. The tourism industry contributes nearly $136 billion to India’s GDP and is expected to further grow to US$ 280.5 billion by 2026.

Hospitality and tourism are also among the highest employment generating sectors and among the top 10 sectors in the country with the highest volume of foreign direct investment. In addition to being one of the top sources of foreign exchange, tourism is also among the highest tax generating sectors in the country.



In the previous regime, state government charged different taxes like VAT, luxury and entertainment tax, whereas the central government levied a completely different set of taxes such as excise duty, service tax, customs duty and central state tax.

Consider the VAT, for instance, which was often charged by state governments on a value already including an excise duty. Hence, there was cascading effect in this regime. With different states having their own tax rates, these industries had no option to avail an input tax credit as the burden of central taxes cannot be set off against state taxes like VAT, or vice versa.

Also, in the previous structure, a hotel room with tariffs exceeding Rs. 1,000 per day would be liable to pay 15 % service tax. A deduction of 40% allowed on the tariff value which would bring the effective rate of service tax down to 9%, but its effect was negligible because the VAT and luxury tax would still apply. Such a cascading effect of the tax regime rolls down to the end customer, who bears the ultimate burden.


Under the Goods and Service Tax regime, the hospitality sector stands to reap the benefits of standardized and uniform tax rates, and easy and better utilization of input tax credit.

One of the major benefits of GST to the tourism sector is that it will eliminate the cascading effect on tax. The promise of “one nation, one tax” will also increase the ease of doing the business with the provision of standardized tax rate and flexibility in availing the Input Tax Credit.

Availability of Input Tax credit decreases the final cost to end user, we can expect the industry to attract more overseas tourist than before. This would ideally result in improved revenues for the government, and there are many other benefits of this new tax regime which could help the industry’s growth in the long run.

The rates in the overall hospitality sector, however, have a complex classification and are on the higher end. If the tariff rate per night is less then INR 1000 then there is no tax. Hotels with room tariffs between Rs. 2,500 and Rs. 7,500 will be charged 18% tax while those with daily tariffs above Rs. 7,500 will be levied a GST of 28%.


  • Easy Administration: GST will abolish several other taxes, leading to a reduction in procedural steps and more chances to streamline the taxation process.
  • Clarity for Consumer: It was sometimes difficult to differentiate between a Value Added Tax and an entertainment tax for the common man. However, under the GST regime customers will see only a single charge on their bill and it would give them a clear picture of the tax they are paying.
  • Improved Quality of Service: With just one tax to compute, the checking-out process at hotels and restaurants will now become easier – another perk that the hospitality industry can brag about.
  • Availability of Input Tax: The tourism and hospitality industry will find it easier to claim and avail input tax credit (ITC) and will get full ITC on their inputs.


  • Increased Technological Burden: Under GST, in order to manage the accounts and file returns but it will require businesses to become technologically adept, but it will increase the technological burden and cost for compliance.
  • Increased Costs: GST charged at 18%, there is only a minimal cost reduction. Businesses will also look to recover the additional cost of technology and new systems from their customers, which might – in some instances – lead to higher tariffs.
  • Lack of Parity with Asian Counterparts: As India becomes an even bigger player in the global hospitality and tourism industry, we need services to be at par with global rates. Our Asian neighbors such as Japan and Singapore have very low tax rates for their hospitality sector (8% and 7% respectively) which is an important reason for them ranking high on tourist wishlists.


Under GST the place of supply is shifted to the place where immovable property is situated in case of Hotels, Restaurant & Monuments for sightseeing is situated. This will increase the revenue of such states where immovable property is located. Currently, on such income, States charges local Luxury Tax on hotel stay and VAT on food supplied. While Union Government gets revenue from Service Tax on such services.

But, because of GST, the States having maximum tourist places, hotels or restaurants for tourist shall earn the maximum revenue by way of SGST which will be equivalent to CGST.

The GST would amount the result of over 25 years of indirect tax reforms, which would boost the efficiency of taxation, improve tax enthusiasm and bring about an integrated market nationally.

Article Assistant

Shrutika jain

(Team SSRPN)