Thanks to the Goods and Travel Taxes, companies can now ensure savings on business trip expenses such as the Hotel GST rate. Corporate business travel is a significant driver of the travel and hospitality industry. Business travel costs such as transportation and accommodation represent a large portion of company expenses. Adopting a corporate travel policy helps organizations restrict travel expenditure besides availing of pre-negotiated rates for employee accommodation or discounts on hotel tariffs. Businesses have another avenue to save travel costs by claiming Input Tax Credit on the hotel GST rate.
GST system of indirect taxes enables SMEs and large corporate companies to offset a large portion of taxes they pay for purchasing goods and services by getting tax credits on GST on hotel rooms. Read ahead to learn how the GST system brought a positive change to business travel besides the salient aspects of Goods and Services Taxes benefiting the corporate sector.
Pre-GST rate
Before the Goods and Services Tax system, lodges and hotels paid separate taxes to central and state governments. The complex tax structure was not uniform across states, adding to the frustration of hotel owners and business travelers who represent a large chunk of the hotel clientele, whether it is a holiday or lean season. Businesses had to bear the brunt of the taxes that involved multiple complexities, including:
- There were myriad taxes payable to central and state governments.
- Central government taxes included customs duty, excise duty, and service tax.
- State government taxes were a luxury tax, entertainment tax, and VAT
- There were separate rules for filing tax returns and compliance norms, adding to the complexities.
Business enterprises paid taxes on taxes because of the cascading effect of the pre-GST system. They could not claim Input Tax Credits as the system lacked the uniformity of state taxes. Each state levied its taxes, adding to the confusion while filing returns.
Post-GST rate
The goods and Service Tax system merged all taxes under one simple tax providing relief to the hotel and tourism industry, with a uniform hotel GST rate across the country. The new tax system revolutionized the way businesses claimed tax returns. Companies can now claim the input tax credit for the entire amount of taxes with no hassles, which was unheard of during the VAT era. The room tariff below INR 1,000 was exempt from the GST on hotel rooms.
The new slabs of GST for hotel rooms are:
- 12 percent GST- room charges per person per day INR 0 to 2,449
- 18 percent GST- room charges per person per day INR 2,500 to 7,499
- 28 percent GST- room charges per person per day INR 7,500 and above
Organizations must share the GST number and other crucial details with the hotel before preparing the bill. Hotel staff who bills and applies GST in the invoice are accountable for uploading the GST amount of the business traveler’s company with the tax credits.
Hotel GST rate for cancellations
Hotels charge a specific amount when the business traveler books accommodation. The booking amount may be refundable depending upon the hotel policy in the event of room booking cancellation.
Most hotels would deduct a cancelation amount from the booking amount to process a refund, as per the hotel’s cancellation policy. The GST law states that the hotel will apply the GST amount at 18 percent on the cancellation fee. It will be regardless of the GST rate the hotel applied while booking the room.
Suggested Read: Best Ways To Enhance Corporate Travel Booking Process
GST Input Tax Credit in hotel room
Companies must ensure that the hotel for accommodation has a GST number while booking rooms for business travelers. Sharing all necessary details, including the company’s GST number, is mandatory to receive a GST invoice for the hotel accommodation for business travel. Business travel is an input for the business, and the GST system entitles the company to an Input Tax Credit (ITC) on the hotel GST rate.
A GST invoice of the hotel mentioning the company’s GST number is essential to claim Input Tax Credit against GST on hotel rooms. Online travel management solutions provide access to a curated inventory of hotels assuring GST invoices. The SaaS-based travel management platform allows a self-booking facility for employees for convenience.
The platform applies the GST details of the company on every booking by the business traveler.
Companies sending employees on domestic and international business trips can avail of the input tax credit to ensure significant benefits to reduce business travel costs without curtailing business trips.
Conclusion
The launch of GST (Goods and Services Tax) was the most extensive and significant tax reform, consolidating all indirect taxes under a unified tax structure for simplicity. Small and medium businesses can benefit from the Input Tax Credit (ITC) because of the GST system. High rates of taxes in the travel and hospitality industry ensure significant savings through the ITC.
Input Tax Credit is not available if the company and the hotel are in different states as there is no provision of IGST for hotel accommodation. However, a self-booking tool like Paxes can ensure ITC benefits on most bookings by providing state-specific GST numbers of the hotel chains.
Suggested Read: Top 8 Tips To Streamline Hotel Group Booking For Corporates
Hotel GST Rate FAQs
Is there a GST exemption for room tariffs below INR 1,000 per day?
The GST exemption for daily room tariff below INR 1,000 is not available anymore.
Which business travel expenses are eligible for the Input Tax Credit on GST?
Companies can claim ITC on business travel expenses towards payment of taxi fares, accommodation, car rentals, public transportation, train travel, and flight tickets.
How many types of GST apply in India?
Three types of GSTs apply in India. These are CGST, SGST, and IGST.
What is GST Compliance Rating?
GST Compliance Rating by the government to determine the record of business of timely returns filing, furnishing of details of taxes paid, and input credit utilization.
What does a declared tariff not include?
A declared tariff does not include a discount that may be available for the customer.
Is there a separate GST rate for hotels used for business purposes?
No, the GST rate remains the same and will be determined by the tariff of the room.
Do I need to provide any documentation or proof to avail the business travel GST rate?
Are meals and other services included in the GST rate for business travel?
No these services will have different GST rates as they may be billed separately.
