Travellers Shocked: Hotel Bills Unchanged Despite GST Rate Reduction Due to Tax Credit Loss

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AuthorWhalesbook News Team|Published at:
Travellers Shocked: Hotel Bills Unchanged Despite GST Rate Reduction Due to Tax Credit Loss
Overview

Despite a reduction in Goods and Services Tax (GST) from 18% to 5% for hotel rooms priced below ₹7,500, travellers are reporting no decrease in their bills. This is because Online Travel Agencies (OTAs) and hotels have lost the benefit of Input Tax Credit (ITC), a mechanism that previously allowed them to offset taxes paid on inputs. The removal of ITC makes the GST a direct, non-creditable cost, offsetting the intended savings and increasing operational expenses for hotels. Industry bodies warn this could negatively impact mid-market and budget hotel segments, potentially stalling tourism recovery and investment.

Travellers who expected lower hotel bills following the recent Goods and Services Tax (GST) reduction to 5% on rooms under ₹7,500 have expressed surprise and disappointment as their bills remain largely unchanged. For instance, a user shared an experience where a hotel room still cost ₹5,581, similar to pre-reduction prices, despite the GST rate cut. The core issue lies in the withdrawal of Input Tax Credit (ITC) benefits for Online Travel Agencies (OTAs) and hotels. Previously, OTAs could claim ITC on bulk bookings, and hotels could claim back GST paid on various inputs like rent, utilities, and capital expenditure. With the new rates, this ITC is no longer available, effectively making GST a non-creditable cost. This forces hotels to absorb the increased tax burden, negating the benefit of the lower GST rate and preventing price reductions from reaching consumers. The Federation of Hotel & Restaurant Associations of India (FHRAI) and various tax experts have highlighted that this situation particularly affects the mid-market and budget hotel segments, which are crucial for domestic tourism. It increases operating expenses, strains liquidity, and could deter much-needed investment and expansion in the hospitality sector, potentially impacting millions of livelihoods and slowing down the current rebound in domestic tourism.

Impact:
This development could lead to decreased profitability for hotels and OTAs as their tax costs rise unexpectedly. For consumers, travel costs may remain higher than anticipated. The uncertainty and increased costs might slow down investment and growth in the Indian tourism and hospitality sector, which is a significant contributor to the economy. Rating: 7/10

Difficult terms:
GST: Goods and Services Tax, a comprehensive indirect tax levied on the supply of goods and services in India.
ITC: Input Tax Credit, a system where businesses can reduce their tax liability by claiming credit for taxes paid on inputs used in their business operations.
OTA: Online Travel Agency, a travel company that sells travel and accommodation services online.
Cascading Tax Effect: A phenomenon where taxes are levied on taxes, leading to higher cumulative tax burden and increased prices, which GST aims to eliminate.
FHRAI: Federation of Hotel & Restaurant Associations of India, a prominent industry body representing hotels and restaurants in India.
CBIC: Central Board of Indirect Taxes and Customs, a government body responsible for administering indirect taxes in India.

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