The hotel industry forms an integral part of the hospitality industry. The major fields within the hospitality industry include lodging, restaurants, event planning, theme parks, cruise line, etc. The hospitality industry is a multi-billion dollar industry that mostly depends on the availability of leisure time and disposable income. A hospitality unit such as a restaurant, hotel, or even an amusement park consists of various groups within it, including facility maintenance, direct operations (servers, housekeepers, porters, kitchen workers, bartenders, etc.), management, marketing, and human resources.
IMPORTANT LAWS APPLICABLE TO THE INDUSTRY
The majority of the legislations governing the hospitality and hotels industry can be divided into three main sectors.
- The first head is the legislation for the construction and commissioning of hotels, restaurants, guest houses and other establishments, and includes the Foreign Exchange Management Act, the industrial licensing policies, land laws and various development control orders issued by the central and state governments.
- The second head has legislation for the operation, maintenance and management of establishments, food and hygiene standards. It also includes insurance laws, fire safety and weights and measures regulation. Further, various licenses, such as a liquor license, dance license, lodging house license, eating house license, police permissions, a license under the Shops and Establishment Act, or a license under the Food and Drug Administration Act, granted on an annual basis.
- The third head has rules regarding taxation, employment and other contractual relationships. This includes laws on income tax, service tax, expenditure tax, excise duty, luxury tax, entertainment tax, as well as laws on employment matters like Apprentice Act, ESI Act, etc.
SOME OF THE IMPORTANT LICENSES REQUIRED BY HOTELS UNDER VARIOUS ACTS
- Police License / Registration.
- License under Shops & Establishments Act.
- License under Prevention of Food Adulteration Act.
- Registration under the Luxury Tax Act.
- Registration under the Sales Tax Act.
- Registration under the Contract Labour Act.
- Registration under the Pollution Control Act.
- Registration under the Apprentices Act.
- Registration under the Provident Fund Act.
- Registration under the ESI Act.
- Entertainment License on Festival Occasions.
- License for Chimney under the Smoke Nuisance Act.
- Registration under the Weights & Measures Act.
- Factory License for Laundry.
- Central Excise License for Bakery Products.
- Registration & Permits under the Motor Vehicle Act for Tourist Coaches / Taxies.
- Eating House License.
- Municipal Beer Bar License.
- License for storage of Diesel Oil.
- License for storage of Kerosene & Compressed Gas (LPG).
- Sign Board Directions, Neon Signs.
- License to deal in Foreign Exchange under FEMA.
- Cold Storage License, (if over 25 cubic ft.).
- License for Boiler & Generators and Mixers and Grinders.
- Bar License (Foreign Liquor).
- Mild Liquor License.
- Temporary License for Awnings & covering of Terrace during monsoon.
- Building Completion Certificate.
- Copy Right License for Playing of Music.
- Lodging House License
- Approval from the Department of Tourism, Government of India.
- Registration from GTDC for new projects under the Package Scheme of Incentives.
SOME IMPORTANT LEGISLATION
Prevention of Food Adulteration Act
1. protect the public from poisonous and harmful foods.
2. prevent the sale of substandard foods.
3. protect the interests of the consumers by eliminating fraudulent practices.
- It is a Central Government Act.
- This Act has been enacted to
Food Safety and Standards Act
The Act deals with the following:
- Establishment of the Food Safety and Standards Authority of India, which lays down scientific standards relating to articles of food; and
- Regulates the manufacture, storage, distribution, sale and import of food articles, and
- Ensuring the availability of safe and wholesome food for human consumption and for matters connected therewith or incidental thereto.
The Legal Metrology Act
- This Act was enacted to establish and enforce standards of weights and measures, regulate trade and commerce in weights, measures and other goods which are sold or distributed on weight, measure or number.
- It is a Central Government Legislation.
Copyrights Act
- It is a Central Legislation to protect rights relating to literary, dramatic, musical, artistic, architectural works, etc.
- Hotels have to take license under this Act to organize plays, musical shows or any other event.
The Foreign Exchange Management Act (FEMA)
- It is an Act passed in the winter session of Parliament in 1999
- It replaced Foreign Exchange Regulation Act.
- This act seeks to make offenses related to foreign exchange civil offenses.
- It extends to the whole of India.
The State specific Shops and Establishments statutes
- These legislations have been enacted to provide statutory obligation and rights to employees and employers in the unorganized sector of employment, i.e. shops and establishments. It is applicable to all persons employed in an establishment with or without wages, except the members of the employer's family.
- It is a State legislation and each State has framed its own rules for the Act. The State Government can exempt, either permanently or for a specified period, any establishments from all or any provisions of this Act.
- The Act provides for compulsory registration of shop/ establishment within 30 days of commencement of work and all communications of closure of an establishment within 15 days from its closing.
- It also lays down the hours of work per day and week as well as the guidelines for spread-over, rest interval, opening and closing hours, closed days, national and religious holidays, overtime work, etc.
The Employees State Insurance Act
- It is a Central Government legislation
- The promulgation of Employees' State Insurance Act, 1948 envisaged an integrated need based social insurance scheme that would protect the interest of workers in contingencies such as sickness, maternity, temporary or permanent physical disablement, death due to employment injury resulting in the loss of wages or earning capacity.
- The Act also guarantees reasonably good medical care to workers and their immediate dependents.
- Following the promulgation of the ESI Act the Central Government set up the ESI Corporation to administer the Scheme.
The Provident Funds Act
- It is a Central Government Legislation.
- It is regulated by the Government of India under the Ministry of Labour and Employment.
- It administers a compulsory contributory Provident Fund Scheme.
The Apprentices Act
- This Act has been enacted to provide for the regulation and control of training of apprentices and for matters connected therewith.
- It is a Central Government Legislation
The Air (Prevention and Control of Pollution) Act, 1981
- This Act has been enacted to provide for the prevention, control and abatement of air pollution, for the establishment, with a view to carrying out the aforesaid purposes, of Boards, for conferring on and assigning to such Boards, the powers and functions relating thereto and for matters connected therewith.
- It is a Central Government Legislation
The Water (Prevention and Control of Pollution) Act, 1974
- This Act has been enacted to provide for the prevention and control of water pollution and the maintaining or restoring of wholesomeness of water, for the establishment, with a view to carrying out the purposes aforesaid, of Boards for the prevention and control of water pollution, for conferring on and assigning to such Boards, the powers and functions relating thereto and for matters connected therewith.
- It is a Central Government legislation
Hotel Insurance Policies
- Hotel insurance is specifically designed to meet the growing requirements of the hotel industry.
- Customized hotel insurance can be arranged to cover all types of establishments. Be it spas, ranches, guest houses, bed and breakfasts (B and Bs) or apartments, hotel insurance caters to every kind of establishment.
- A standard hotel insurance policy includes protection against perils, such as builder's risk, fire and accidental damage, and natural calamities. Other types of coverage, such as liquor liability, are a part of the policy's casualty portion.
Other important Legislations
- Laws related to local land norms
- Other local laws
TAX LAWS
Income Tax Act, 1961
- It is tax on income imposed by Central Government
- Residents in India are taxed on their worldwide income
- Non- residents are taxed on Indian source of income
- The Indian tax rates applicable to non-residents could be up to a maximum of 40 % i.e. in case of foreign companies (excluding applicable surcharge and education cess)
- If the tax payable by any company, including a foreign company taxable in India, is less than 18.5 % of its book profits, it will be required to pay Minimum Alternate Tax
- Interest received by a non-resident from Indian on foreign currency denominated loans may be taxable.
- Payments towards royalty and fees for technical services are taxable.
Value Added Tax (VAT)
- Sales tax / VAT is levied by states on sale of goods within its territory.
- VAT is levied on value added at each stage in the production and distribution process of goods and services.
- All hotels that exceed the annual registration threshold have to be registered for VAT.
- VAT is levied on hotel bills pertaining to lodging, food, telephone, tours, etc.
- After the implementation of VAT, hotel tax is abolished and therefore hotels do not have to be registered for hotel tax.
- The rates of VAT differ from state to state. The general rate of VAT applicable on food and beverages in a restaurant is 14.5 %.
CENVAT
- Duty imposed by Central Government on manufacture of goods
- CENVAT is imposed at 12 % with lower rates applicable in certain cases
- Food preparations containing fruits and vegetables falling under Chapter 20, which are prepared and served in a hotel, restaurant or retail outlet whether or not such food is consumed in such hotel, restaurant or retail outlet is being fully exempted from basic excise duty with exception of Bakery and Confectionery items.
Service Tax
- Under the current service tax regime, all services are taxable unless exempt.
- General rate of service tax is 12.36 % (Including EC and SHEC)
- Service tax on hotel accommodation is payable at 7.42 %. Service tax on food and beverages is chargeable at 4.94 % in restaurants with air-conditioning.
- Food served in hotel rooms from their air-conditioned restaurants with liquor license will not attract service tax.
- CENVAT Credit is available for the provider of taxable output services.
Luxury Tax
- Under the current tax regime, every state has their individual Luxury Tax Acts.
- Though previously it covered more categories of assessees, at present it covers only the hotels as a taxable assessee.
- The tax is levied on luxuries provided in hotels, lodging house, clubs and inns etc. including residential accommodation but does not include the supply of food, drinks or other services which is separately charged for under Service Tax or other taxes.
Entertainment/Amusement Tax
- In India, entertainment tax is levied on every financial transaction that is related to entertainment such as movie tickets, major commercial shows and big private festivals. Entertainment means any exhibition, performance, amusement, game, sport or race, (including horse race) and cinematographic exhibitions.
- As per the Indian Constitution, entertainment is included in List 2. This revenue is reserved primarily for the state governments.
- Following are some other forms of entertainment that are included in the purview of entertainment taxes: amusement parks, video games, arcades, exhibitions, celebrity stage shows, sports activities, bowling alleys and billiards/pool joints.
- In India, state governments are primarily responsible for collecting the entertainment taxes. However, the union government can also collect these taxes on the basis of the type of transaction.
- The basic financial principle, which separates the entertainment taxes to be collected by the union government and ones under the jurisdiction of the state government, is mentioned in the Article 246 of the Indian constitution.
Expenditure Tax
- Expenditure tax in India is regulated by the Expenditure Tax Act, 1987.
- This Act shall apply in relation to any chargeable expenditure incurred in a hotel wherein the room charges for any unit of residential accommodation at the time of incurring of such expenditure or incurred in a restaurant are one thousand two hundred rupees or more per day per individual and where,-- (a) a composite charge is payable in respect of such unit and food, the room charges included therein shall be determined in the prescribed manner; (b) (i) a composite charge is payable in respect of such unit, food, drinks and other services, or any of them, and the case is not covered by the provisions of sub-clause (a), or (ii) it appears to the Assessing Officer that the charges for such unit, food, drinks or other services are so arranged that the room charges are understated and the other charges are overstated; and (2) incurred in a restaurant.
- Rate of tax is 20 %
- It is a tax collected by the Central Government.
Source: NDA
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