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31 July 2018

Change in method of valuation for hotel industry

The Government has brought an amendment in the Notification No.11/2017-CT (Rate) to give an effect to the change in determining the rate applicable on the services of accommodation provided by the Hotels having prescribed tariff rate. Before the amendment, the applicable rate is determined based on the declared tariff as follows:

S. No. Nature of Service Declared Tariff Applicable Rate
1. Accommodation in hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having “Declared Tariff” of a unit of accommodation of less than one thousand rupees per unit per day or equivalent (Notification no. 12/2017-CT(Rate)) Upto 1000 Nil
2. (ii) Accommodation in hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having “Declared Tariff” of a unit of accommodation of one thousand rupees and above but less than two thousand five hundred rupees per unit per day or equivalent. from 1001 but less than 2500 6+6=12%
3. (vi) Accommodation in hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having “Declared Tariff” of a unit of accommodation of two thousand five hundred rupees and above but less than seven thousand five hundred rupees per unit per day or equivalent from 2500 but less than 7500 9+9=18%
4. (viii) Accommodation in hotels including five 14 - 4 star hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having “Declared Tariff” of a unit of accommodation of seven thousand and five hundred rupees and above per unit per day or equivalent. More than 7500 14+14=28%
  Now, W.e.f 27th July 2018, vide notification No. 13/2018-CT (rate), the concept of “Declared Tariff” has been repealed and the term is replace by “Value of Supply”. Therefore, the tax rate will be determined in accordance with the “Value of Supply” instead of “Declared Tariff”.
S. No. Nature of Service Value of Supply Applicable Rate
1. Accommodation in hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having “Value of Supply” of a unit of accommodation of less than one thousand rupees per unit per day or equivalent. (change via Notification no. 14/2018-CT(Rate)) Less than 1000 Nil
2. (ii) Accommodation in hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having “Value of Supply” of a unit of accommodation of one thousand rupees and above but less than two thousand five hundred rupees per unit per day or equivalent. 1000 & above but less than 2500 6+6=12%
3. (vi) Accommodation in hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having “Value of Supply” of a unit of accommodation of two thousand five hundred rupees and above but less than seven thousand five hundred rupees per unit per day or equivalent from 2500 but less than 7500 9+9=18%
4. (viii) Accommodation in hotels including five 14 - 4 star hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having “Value of Supply” of a unit of accommodation of seven thousand and five hundred rupees and above per unit per day or equivalent. More than 7500 14+14=28%

This can be inferred from the aforesaid table that the declared tariff has got no relevance now. The rate will be determined on the basis of value of supply i.e. value arrived after considering the discount. For Example: if Room Rate of Rs. 8500 per day and a discount of Rs. 2000 has been given to the customer then the tax rate shall be determined on the value of supply arrived after discount i.e. Rs. 8500 less Rs. 2000 = Rs. 6500 @18% instead of 28%.

*As per Notification No. 14/2018 –Central Tax (rate) dated 26.07.2018, Services by an old age homes run by Central Government, State Government or entity under section 12AA of the Income Tax Act, 1961, to residents for consideration upto Rs. 25000 per month per member shall be exempted from payment of whole of GST under the CGST Act, 2017 and IGST Act, 2017.