Hotels commonly bundle accommodation with breakfast, WiFi, gym access, laundry and sometimes airport transfers at a single price. The GST rate on such packages depends on whether they are composite supplies and what the principal supply is.
The Composite Supply Rule for Hotels
Under Section 2(30), a composite supply consists of two or more taxable supplies that are naturally bundled and have a principal supply. Hotel accommodation with breakfast is a classic composite supply: the customer primarily wants the room, and breakfast is ancillary.
Therefore, the package is taxed at the rate applicable to accommodation service.
GST Rates on Hotel Accommodation
GST on hotel accommodation is linked to the value of accommodation per unit per night or the declared tariff. Notification No. 11/2017-Central Tax (Rate) prescribes:
- Nil rate: Accommodation with tariff below Rs 1,000 per day.
- 12%: Accommodation with tariff between Rs 1,001 and Rs 7,500 per day.
- 18%: Accommodation with tariff above Rs 7,500 per day.
- 5% without ITC for certain categories under specific notifications, but generally the above rates apply.
For the purpose of determining the rate, the declared tariff is the tariff declared at the time of supply, not the actual discounted rate. If the declared tariff is above Rs 7,500, the higher rate applies even if the customer pays less due to discount, unless the declared tariff itself is the discounted value in the invoice.
When Food Is Bundled
If breakfast or any meal is included in the room package for a single price, the supply is composite and taxed at the accommodation rate. For example:
- A hotel declares tariff Rs 5,000 per night including breakfast. The whole package is taxed at 12%.
- If the tariff is Rs 10,000 including breakfast, the package is taxed at 18%.
The restaurant service element is ancillary and does not separately determine the rate.
Separate Charges for Food
If the hotel charges separately for food on a pay-as-you-use basis, the food supply may be treated as restaurant service and taxed at 5% without ITC, subject to conditions. In that case, there are two separate supplies: accommodation and restaurant service. Each is taxed on its own.
Other Bundled Services
Services like WiFi, gym, swimming pool, laundry or airport transfer included in the room package are generally ancillary to accommodation and part of the composite supply. The rate is determined by the accommodation tariff.
If these services are separately chargeable and optional, they may be treated as independent supplies with their own rates.
Example
A hotel offers a "Corporate Stay Package" at Rs 12,000 per night including:
- Room
- Breakfast
- WiFi
- One laundry item per day
The declared tariff for the room alone is Rs 11,000. The package is a composite supply with accommodation as principal supply. Since the declared tariff exceeds Rs 7,500, the entire package is taxed at 18%.
Input Tax Credit
Hotels can claim input tax credit on goods and services used for providing taxable accommodation services. However, if food is supplied as restaurant service at 5% without ITC, the hotel cannot claim ITC on the food service inputs. When food is part of a composite supply taxed at 12% or 18%, ITC is generally available on all inputs.
Practical Compliance
- Determine whether the package is composite or separate supplies.
- Identify the principal supply: accommodation.
- Apply the correct rate based on declared tariff per unit per night.
- Maintain tariff declarations and evidence.
- Issue a tax invoice showing the package and tax rate.
- Reconcile ITC based on the nature of supply.
How Anuj Desai & Associates Can Help
We help hotels and hospitality businesses structure their packages, determine correct GST rates, manage ITC and defend assessments on bundled services.
Contact Anuj Desai & Associates
Email: office@anujdesaiassociates.com
Phone: 9619456656
Website: https://anujdesaiassociates.com
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