Is IGST Applicable on Hotel Bills: Confusion Over Billing Explained!

Key Takeaways

Goods and Services Tax (GST) has significantly reshaped the taxation landscape in India, impacting various sectors – including hospitality.

Hotel services, being a common consumer expense and a major part of the tourism industry, are subject to specific GST provisions.

A common point of confusion is whether Integrated GST (IGST) applies to hotel bills, especially in cases involving guests from other states.

This article aims to clarify the applicability of IGST on hotel accommodation, backed by the latest provisions, updates and practical interpretation.

Understanding GST Structure: CGST, SGST and IGST.

GST in India is a dual system comprising:

• CGST (Central GST) – levied by the Central Government.
• SGST (State GST) – levied by the State Government.
• IGST (Integrated GST) – levied by the Centre on the inter-state supplies.

For hotel services, CGST and SGST are charged when the service provider and the recipient are in the same state, while IGST is levied when the supply is considered inter-state.

Understanding this classification is crucial for determining the correct tax on hotel bills.

How GST Applies to Hotel Services?

Hotel accommodation is treated as a supply of service under GST. The applicable tax rate depends on the declared room tariff per night:

• Less than INR 1,000 – Exempt
• INR 1,001 to INR 7,500 – 12% GST
• More than INR 7,500 – 18% GST

These rates include CGST, SGST and IGST, depending on the nature of the supply. Hotels must register under GST if their aggregate turnover exceeds the threshold. The GST is charged on the invoice issued to the guest, based on the applicable slab.

How GST is Calculated?

GST rate is calculated the actual declared cost not on the not discounted amount.

For Example – If a hotel’s declared tariff is Rs. 7,600 but you pay Rs. 6,000 after a discount, the GST is still 18% because the declared tariff is above Rs. 7,500.

GST on Canceled Booking

If you have booked a hotel room and had to cancel it, the GST on the cancellation fee will be the same rate as the GST on the room you booked.

For example:

Mr. Bhavesh booked a hotel room:

• Room Rent (per night) was : Rs.4,000
• Applicable GST Rate: 12%

Now, you cancel the booking.

• Cancellation Charges Fee: Rs.1,500
• GST on Cancellation will be same : 12%

So, even if you cancel, you still pay GST at the same rate.

Claiming Input Tax Credit for Hotels

Hotels can claim ITC on GST paid for goods and services used in their business such as construction materials or cleaning supplies which helps to reduce their tax liability.

When is IGST vs CGST+SGST applied on Hotel Bills?

In most cases, CGST and SGST are charged on hotel bills because the place of supply and the location of the supplier are in the same state – making it an intra-state supply.

IGST is applicable only in rare cases where the transaction qualifies as an inter-state supply under GST law. However, even if a guest is from another state, GST law considers the location of the Hotel (Supplier) as the place of the supply, not the location of the guest.

Hence, IGST is generally not applicable on hotel accommodation bills unless specific conditions are met (explained in next section).

Place of Supply Rules for Hotel Accommodation

As per section 12(3)(c) of the IGST Act, the place of supply for the hotel accommodation is the location of the hotel, regardless of where the costumer resides or is registered.

This means:

• If a guest from Gujarat stays at a hotel in Goa, the supply is considered intra-state in Goa and CGST+SGST will apply.

• Even if the billing address is in another state, IGST is not applicable, since the service is tied to the hotel’s location.

This rule ensures uniformity and removes confusion arising from guest location or billing preferences.

Special Cases Where IGST May Apply

While hotel stays generally attract CGST + SGST, IGST may apply in certain exceptional cases:

• Corporate Bookings: If a company in State A books rooms in State B but asks the hotel to bill the State A office, some interpret it as an inter-state supply. However, CBIC has clarified that the place of supply remains the hotel’s location, so CGST + SGST still apply.

• Online Travel Agents(OTAs): If OTAs are involved (e.g. MakeMyTrip), IGST may apply only on the OTA’s commission if they operate from a different state. The hotel bill still follows CGST + SGST.

• Input Tax Credit (ITC): Businesses may not be able to claim ITC on CGST + SGST if the hotel is in a different state from their GST registration, causing preference for IGST — but law doesn’t permit forced IGST just for ITC benefits.

Latest Updates and Clarifications

• CBIC Clarification (2019): Clarified that hotel accommodation is a service tied to immovable property. Hence, place of supply is always where the hotel is located, even if the recipient is registered in another state.

• Advance Rulings (various states): Reaffirmed that billing to an out of state company does not make it an inter-state supply. CGST + SGST shall apply, not IGST.

• No change in GST rates: The tax rates on hotel accommodation slab rates remain unchanged.

• Input Tax Credit (ITC): Business cannot claim CGST + SGST ITC if not registered in the same state. This is a compliance challenge but does not affect the tax type charged.

These updates confirm the consistent stand that IGST is not generally applicable on hotel bills unless the service is distinctly inter-state in nature (like OTA commissions).

Conclusion

IGST typically doesn’t apply to hotel bills; CGST + SGST are charged based on the hotel’s location. IGST only applies in specific inter-state scenarios like OTAs.

Recent CBIC updates emphasize that the place of supply is the hotel’s location.

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