The Goods and Services Tax (GST) Council announced that from July 18, 2022, hotels charging below Rs 1,000 would also come under the radar of GST officials. People who are looking for a good holiday break this July may have to look into their budget again.
A press release was published by the Goods and Services (GST) Council on 29 June 2022. According to the press release, a hotel lodgement priced up to Rs 1000/day shall be subject to tax at 12%. The government is, however, yet to issue an official notification in this context. Till now, hotel rooms up to Rs 1,000 per day were exempted from GST.
What is GST?
Goods and Service Tax (GST) is an indirect tax levied on the supply of all goods and services. This tax replaces almost all indirect taxes, including service taxes, entertainment taxes, excise duties, State VAT, purchase taxes, luxury taxes, entry taxes, taxes on gambling and lottery, taxes on advertisements, cesses, surcharges, etc.
GST was first made obligatory by France in 1954 and later adopted by several other countries, including the United Kingdom, Spain, Vietnam, South Korea, Australia, Monaco, Canada, etc.
In 2000, then Prime Minister Atal Bihari Vajpayee set up a committee under the leadership of the Finance Ministry’s advisor Vijay L. Kelkar. He concluded that the Goods and Services Tax could help improve the tax structure of India.
In 2011, to facilitate the Goods and Services Tax law, a Constitution Amendment Bill was introduced. Alongside, four supplementary GST bills were also passed by the Lok Sabha and approved by the Cabinet. Hence, the GST law came into force on 1 July 2017.
The main objective and idea behind this law were to eliminate corruption and tax evasion in the country, thereby increasing overall efficiency and productivity.
With the coming up of the Goods and Services Tax, a uniform tax structure has been established all over the country, and regulation of the unorganized sector has become much more accessible and simple.
Four types of Goods and Services Tax
1) Central Goods and Services Tax (CGST)-
The CGST is staked up by the Central Government. It is procured on the intra-state transaction of goods and services, and the central government is also responsible for collecting the revenue generated by this tax.
2) State Goods and Services Tax (SGST)-
The SGST is acquired by the State Government. It is procured on intra-state transactions of goods and services. The revenue generated is aggregated by the state.
3) Integrated Goods and Services Tax (IGST)-
IGST is charged for inter-state transactions of goods and services and on imports and exports. Both Centre and State governments share the revenue collected through IGST.
4) Union Territory Goods and Services Tax (UGST)-
This tax is procured on all the transactions carried out in the Union Territories of India. What is this elevation all about, and how will it affect the citizens?
GST Council has suggested levying 12% Goods and Services Tax on low-cost hotels from now on. This will make it difficult and splurgy for the ‘common man’ to plan a holiday.
Earlier, any hotel, guest house, inn, camping, and club for residential and lodging purposes, having a value of a unit of lodgement of Rs 1,000 per day or below, was exempted from the Goods and Services Tax.
With the exemption of Goods and Services Tax, almost all hotels have announced an impost of Rs 7,500 or below, which will be obligated to the GST at the rate of 12%. Hotel rooms below or equal to Rs 7,500 will be charged GST at the rate of 12%, and hotel rooms above or equal to Rs 7,501 will be charged GST at the rate of 18%.
According to Abhishek Jain, Partner, KPMG India, this change has been introduced by the government to widen the tax base, but it will affect a lot of customers who are the end consumers.
For a better understanding, if person A was renting a hotel room for Rs 950 per night earlier, they were exempted from paying Goods and Services Tax. But from 18 July 2022 onwards, they will be required to pay 12% GST, that is, Rs 114 as a GST.
Now the total amount person A would have to pay will be Rs 1064 per night. This will certainly make it very hard for customers to decide whether to go on a vacation or not.
However, small hotels may find a little relief as they will not be covered under this Goods and Services formula if their revenue is less than the taxable limit of Rs 20 lakhs per annum.
But the question that arises is how can a customer be sure that the hotel with annual revenue below Rs 20 lakhs will not charge the Goods and Services Tax from them? How can the government ensure that the Goods and Services Tax customer pays is going straight to the government and not corrupted?
Even though this amendment is bought to widen the tax base, how will it benefit the customers? This is a big change and may also lead to fraud and corruption. This inconsistency in tax elevation can make customers persistent in seeking these services.
Inflation is already at its peak, and at this time, rising the Goods and Services Tax for all sorts of hotels can be very unpleasant and problematic for the ‘common man’ of India. The government should focus on tax consistency to provide citizens with better services.
This new amendment will come into force by midnight on 18 July 2022. Adding the Goods and Services Tax amount to your existing holiday budget will be required to be done before that.
Edited by Prakriti Arora
