The hotel industry has been one of the most affected industries by the Coronavirus pandemic (Covid 19). The industry must reduce its costs to avoid GST non-compliance. The industry’s main business is B2C, which means that any future GST demands would become a cost. The author, with his vast experience in the hotel business, explains the current GST issues that the industry is facing and suggests possible solutions. The time for supply and the adjustment of advance payments: In the case of advances received to provide services, GST must be discharged when the advances are received and adjusted when the invoices are raised. The issue could arise if GST is discharged at a different rate when the service is provided. An example would be that the hotel may have paid GST at 18% when it received the advance but charged a room between Rs. The hotel may have paid GST @ 18% at the time of receipt of the advance, but the room provided has a tariff of Rs. The GST rate is 12 %. The advance on which GST has already been discharged is not adjusted. Double taxation results. The income is accounted for in the accounts, but no invoice has been raised. A typical example would be a guest who did not check out by the end of the month but had income recorded in the accounts. The guest ledger is updated with the restaurant bill, but checkout has not yet been completed. This issue can be resolved by keeping track of all advances and adjusting them accordingly. In the case of restaurant services and ancillary services, the time of supply could be shifted to the date the invoice is raised. It is recommended that the tax invoices for In-house guests are raised instead of the charge slips after the completion of the service. The final invoice can be issued at checkout. Some hotels follow the procedure of a complete checkout at the end of the month/day and rechecking at the beginning of the following month/day. Advertisement Ads by The majority of hotels will use separate software to run their business. To avoid large differences at year-end, it is important to reconcile the balances between the software and the accounts. In the industry, bundling a few complimentary services or offering a few services in bundled form is common. The FAQs published by the Government stated that the industry standard is to provide a complimentary breakfast. This would be considered the main service for accommodation services. Examining the differences in treatment between composite and mixed supply is important. Examples include complimentary rooms for a banquet. Weddings at a destination where rooms and banquets are provided at a package price. For Valentine’s Day, accommodation and restaurant services can be provided for a single rate. In the case of Composite Supplies, services should be bundled. When the principal supply is at a lower rate and the ancillary service is at a higher rate, it’s important to be careful. A wrong classification of mixed supply will lead to differential tax demands in the future. Supply to SEZ units and place of supply. There are still some doubts about whether CGST + SGST or IGST should be charged for services provided to SEZ units. SEZ unit supplies would be specific, and IGST will be charged. If the entity has received a certificate from an SEZ unit stating the operation is authorized, it can issue the invoice after obtaining the LUT without GST or charge IGST. Most services offered by hotels are intra-State, and, therefore, subject to CGST plus SGST. In the case of ancillary service provided that does not relate to immovable properties, IGST may be applicable if it is an interstate supply. Booking cancellation charges (no-show fees) are the most common phenomenon in the industry. Cancellation fees generally depend on the cancellation time, i.e., The cancellation charge is higher when the time of cancellation is shorter. Most hotels are collecting GST @18% on these cancellation charges, even though no service was provided. The author believes that GST does not apply to cancellation charges as no supply is involved. The CGST Amendment Act of 2018 clarified that the conditions in section 7(1)(a) must be met to classify a transaction as supplying goods or services. Schedule-II activities were only classified as such for purposes of classification. TDS or TCS Compliance: TDS provisions will apply to services the Government provides. departments, PSU, etc. These entities will deduct a certain amount of GST. Entities and file TDS return. Bookings made through E-commerce Operators are subject to TCS from 01st Oct. 2018. E-Commerce Operators must collect one percent of the net value for taxable supplies they make through them, where the operator collects the consideration. They must also file TCS returns. Currently, the majority of hotels are unaware of this provision. The hotel must accept and check the entries made by the customer/e-commerce operators in their TDS and TCS return forms so that the amounts are credited into the electronic cash ledger. Reversal credit for exempted Supplies (Rule-42 and 43 of CGST Rules). A restaurant accompanies most hotels. If the declared rate of unit accommodation is more than Rs. The restaurant must adopt GST @18% with the benefit of input tax credits; otherwise, for services provided by the restaurant, the rate would be 5%. From 01st Oct. 2019, banquet and outdoor catering services will be treated the same as restaurant services. Exempted hotel services include: Banquet services, Restaurant services, and outdoor catering, provided the declared tariff for a unit does not exceed Rs. 7500/- or the equivalent per day. Rental a cab service where the entity elects to discharge GST at 5% Accommodation services when the value of the supply for an accommodation unit is less than or equal to Rs. The supply value for an accommodation unit is less than or equal to Rs. The few services above that are subject to 5% GST but do not have ITC must be treated as services exempted, and the proportionate credit reversed. Simple: Input tax credits cannot be claimed for goods or services used exclusively to make the exempted supply. Input tax credits of 100% can be claimed for goods and services exclusively used to make taxable supplies. Credits proportional to the value can be claimed for inputs and services used for taxable and exemption supplies. GST liability for ancillary service provided: Different treatment by different entities about the following services: Sales of cigarettes and other tobacco products, Sale of Hanukkah, In-room dining, Sale of cool drinks/aerated waters, Mini bar sales (sale snacks, beverages, etc.). The author believes the services are restaurant services since they are available in the room. The facts and circumstances and a cost-benefit analysis would determine the treatment. This must all be done within the confines of the law. Regarding rent-a-cab services, GST rates would be 12% if ITC is included and 5% if not. If the entity chooses 5% without ITC, the specified compliance under Rule-42 or 43 must be met, considering that such turnover is exempted. Other services such as laundry, internet, spa, and gym are not included. Unless otherwise specified, the general rate is 18%. A separate valuation procedure can be used if you are selling or buying foreign currency. If renting out a venue for an event, a GST of 18% must be paid. Many hotels still believe they cannot claim input tax credits for repairs and maintenance on immovable properties. ITC is available for repairs and maintenance on buildings, plants, and machinery when these expenses are not capitalized. ITC is available on furniture, chillers, DG sets and HVAC systems, interiors, decorative items, and immovable interiors. ITC is available on kitchen equipment, crockery, cutlery, and other restaurant items. If the restaurant is discharging GST at 18%. ITC is available on business expenses such as bank charges and other insurance than health and life or stationery purchases. ITC is available on perquisites provided to employees (like travel and food) as part of a contract between employer and employee. Rent a car, health insurance, life insurance, etc., are some expenses that can be claimed. ITC is available if the requirement is set by law. In the case of hotels that are under construction, the availability of input tax credits on Cement and Steel, as well as other construction materials and services, can be considered in light of the Orissa High Court’s judgment in Safari Retreats Pvt Ltd, wherein the court ruled that input tax credits (ITCs) on inputs, input services, and inputs used for the construction of a mall could be claimed against the GST payable on the rent income received from tenants. Import of services and reverse charge: In the case of a multi-chain hotel, a lot of payments would be made in foreign currency, such as royalties, management fees, or operational fees. The reverse charge should be applied to each transaction, and the tax discharged accordingly. It is important to note that, about related enterprises, the date of entry into the books or the date of payment would be the date of supply. The liability for reverse charges is generally the same as that of GTA Services, legal and security services, sponsoring services, rental motor vehicle services, etc. It is important to examine. The reverse charge does not apply to fees the State Government pays for liquor licenses. Refunds can be requested if already paid. The hotel can refer to the Gujarat HC’s ruling in Mohit Minerals, where it was ruled that entry 10 of the notification was ultra vires of the IGST Act. The reverse charge liability for goods or services purchased from unregistered individuals (Sections 9(4) of CGST & 5(4) of IGST Act) has been deferred from 13.10.2017. Cross Charge and ISD: There would be temporary shifting/transferring of human resources from one entity to another entity/another branch of the same entity in a different State. It could be due to a shortage of staff or training. The GST must be paid for these services. Export of service can be considered if the resources are sent to another country, provided that all conditions for export services have been met. In the case of common services provided at the head office, ISD can be used to transfer the credits to the units. FTP Benefits: For services rendered where an entity has received convertible foreign currency as payment from a foreigner, it can receive a transferable credit note under the Foreign Trade Policy. Benefits range from 3%-5% of the net amount earned in foreign currency. The EPCG option allows hotels to import capital goods without paying import duties. The export obligation must be met within the specified time frame to avoid penalties and interest. COVID-related: 1. Insurance claims received. Most hotels have insurance for Contingent Business Interruption, which covers losses that are beyond the control of the business. The insurance company will compensate for the loss of income during this period. This could cover situations like Covid-19. The compensation received is not subject to GST because there was no supply of goods and services. In the case of lost, stolen, or destroyed goods, it is important to examine the ITC restrictions. 2. Several States, such as Madhya Pradesh and Rajasthan, have felt the impact of government-owned hotels being used to develop isolation wards. The Government has ordered a few hotels and resorts to be converted into isolation wards. Disaster Management Act. Few hotels offer free stays to health workers. A few hotels did this as part of their Corporate Social Responsibility. In all of these cases, there is no payment. According to the author, this transaction does not fall under Schedule I, and GST is not applicable. Other Compliances: ITC (alongside requisite interest) must be reversed in cases where payment is not made within 180 days of the invoice date. ITC may be used to pay the vendors. In the case of reverse charge transactions, where the supplier has not been registered, a self-invoice must be issued. Vendors must reverse the input tax credit for credit notes when they issue them with GST. GST rate will be reduced in FY 2019-20, and the luxury tax has been abolished. It is recommended to claim a refund if any tax has been discharged. The total bill can be divided into accommodation, food, and beverages. This will assist the customer in determining if they are eligible for ITC. Customers can claim ITC if they use the service for business purposes and not to provide accommodation for their employees on vacation.
