GST rates: Budget hotel startups may drop prices, welcome move

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If you are a traveller on a shoestring budget, Modi government's move to reduce tax rates on budget accommodation might bring some joy to you.

Hotels in India offering room tariffs below Rs 1,000 per night have now been exempted from tax. Those hotels with room rentals between Rs 1000-2500 will be taxed at 12 percent, much lower than what they charged their customers earlier.

"It is a great news. It will reduce the cost of rooms for our customers," said Sidharth Gupta, co-founder at Treebo adding that 75-80 percent of Treebo's accommodation inventory falls in the sub Rs 2500 rentals range.

"Tax rates were higher earlier. Before GST there were mostly two types of taxes applicable on hotels -- service and luxury tax. Luxury tax used to vary from state to state and different states had different rates as well as different ways of applying the luxury tax. Some added the tax depending on slabs of rooms," said Gupta.

According to him, the aggregate tax in a Treebo room could typically fall in the range of 15-20 percent earlier.

Ritesh Agarwal, founder and CEO of India's largest budget hotel aggregator chain Oyo Rooms says that a lower tax rate for budget hotels sector will ensure that the industry's quality upgrade continues while delivering standardised accommodation to middle-class travellers.

"This will also create thousands of new jobs which could have been impacted by higher tax rates. Hotels are the single biggest contributor to tourism industry which accounts for 7.5 percent of the GDP. The move will boost revenue from travel and tourism sector for the next many ears," Agarwal said.

Read Moneycontrol's full coverage on GST here

OyoRooms operates about 7,000 hotels in more than 200 Indian cities. The company will pass on benefits of uniform taxation across the country to travellers.

The rates at five star and luxury hotels will remain steep as they will be taxed at 28 percent.

Watch: How GST will impact startups? 

Startups such as Oyo have received the backing of Japanese investor Softbank. Treebo recently raised money Bertelsmann and larger companies such as MakeMyTrip, GoIbibo and Yatra have launched their own budget hotel segments.

In 2015, MakeMyTrip launched Value Plus, GoIbibo started GoStays and Yatra rolled out TG Rooms and TG Stays.

In one of the biggest consolidations in the travel segment, last year MakeMyTrip and GoIbibo also merged their businesses to ward off smaller competitors in this segment. According to Oyo, the industry is expected to contribute USD 280 billion to the GDP by 2026.

priyanka.sahay@nw18.com