5% GST for budget hotels, no input tax credit

Ease of GST compliance likely for small and budget hotels

The government has said hotels must charge a 5 percent goods and services tax (GST) without Input Tax Credit (ITC) for accommodations that cost Rs 7,500 or less a day.

The mandatory rate removes the earlier option of charging 18 percent GST with ITC.

“The hotels supplying units of accommodation which have value less than or equal to Rs 7,500 per unit per day shall not be able to avail ITC on such units, as the GST rate prescribed for such supplies is 5 percent without ITC,” the latest FAQ released by government on the new GST regime says.

The new GST regime comes into effect from September 22.

The move is expected to ease compliance for small and budget hotels while ensuring uniform tax treatment across the sector. Hotels will no longer be able to claim ITC on inputs used for these units, aligning the treatment with other exempted or low-rate services.

The FAQs provide clarity for service providers across hotels, beauty and wellness, transport, and e-commerce delivery sectors, aligning tax compliance with operational realities while ensuring proper ITC treatment.

Beauty and physical well-being services

Services relating to beauty and physical well-being are also subject to a mandatory 5 percent GST without ITC.

Service providers cannot choose the earlier 18 percent rate with ITC.

The clarification applies to standalone beauty services as well as spa and wellness centres, standardising GST treatment and reducing compliance ambiguities.

Multimodal transport of goods

GST on multimodal transport services has been rationalised based on whether air transport is involved.

Without air transport, a 5 percent GST will be applicable. With air transport, an 18 percent GST with full ITC on all inputs and input services will be applicable.

For instance, if the shipment includes air transport, full ITC can be claimed on all inputs, providing relief for higher-cost air shipments.

Local delivery via e-commerce operators

Local delivery services supplied through e-commerce operators (ECOs) will attract GST at 18 percent. This ensures clarity on GST liability for last-mile delivery services, which have grown significantly with the expansion of e-commerce.