Introduction:

Accommodation services are widely and one of the most commonly used services. From GST perspective, accommodation service industry has always been under pressure and keep addressing their issues to the government. Accommodation services are two-fold and classified as hotel accommodation and renting of residential dwelling

Outward Supply:

The general GST rate at which accommodation services are being levied on is 12% provided declared tariff is less than or equal to seven thousand five hundred. Earlier, accommodation services were exempt if such services have value of supply less than or equal to rupees one thousand but now this exemption has been withdrawn by the government. However, in the recently held 53rd GST council meeting, a big relief was given to the accommodation industry. It was recommended as “Supply of accommodation services having value of supply less than or equal to twenty thousand rupees per person per month provided that the accommodation service is supplied for a minimum period of ninety days”. Industry was overjoyed with this exemption, but when it came to execution of the exemption, industry realised the practical difficulties. This is very much applicable in case of renting of residential dwelling.

In case of renting of residential dwelling, herein referred as ‘renting services’, generally such services are exempt from GST. However, government withdrawn this exemption in case renting services are provided for residence to registered person on reverse charges basis (RCM). Following is the summary of tax applicable on each scenario:

Nature of property	Property used for	Recipient registered or not	Exemption	Basis of GST payable
Residential Dwelling	Residence	Not Registered	Available	NA
Residential Dwelling	Residence	Registered	Not available	Reverse charge
Residential Dwelling	Non-Residence/ Commercial	Not Registered	Not available	Forward charge
Residential Dwelling	Non-Residence/ Commercial	Registered	Not available	Forward charge

It is to be noted that if the declared tariff is more than seven thousand five hundred per unit per day or equivalent then the outward GST rate of accommodation services would be 18%.

Further, it is well understood that renting would come up with providing food and beverage services in case of hotels and in some of the cases of renting services. Now comes the question of taxability of such food and beverage services. Food and beverage services are generally known as provision of restaurant services and hence are chargeable at 5% or 18% subject to repercussions on ITC, which is discussed in the ITC part ahead.

Further, any other services provided separately are to be charged at 18% for eg: service charges etc.

GST law has a concept of composite supply wherein, if one or more goods or services are supplied and all such goods or services are naturally bundled then all such goods or services would be taxed at the rate at which the principal supply is taxed at. With regards to this, alternatively, all the services mentioned above can be charged at a rate which is applicable for principal supply i.e. 12% and can be treated as composite supply as all these services are bundled together.

Input Tax Credit (ITC)

Where the benefit of exemption of INR 20,000 is availed, then no ITC would be available with regards to turnover of accommodation services and ITC should be reversed on monthly basis in proportion to the outward exempt supplies as per Rule 42 of the CGST Rules, 2017 and if any capital asset is purchased, then ITC on such capital asset should also be proportionately reversed as per Rule 43. However, proportionate ITC would be available to claim in respect of any taxable turnover.

For instance, if the accommodation services are supplied under exemption the no ITC is available on inputs and input services exclusively used for providing such accommodation services. Also, common ITC to be reversed to the extent of exempt turnover. Further, if service charges are being charged where GST is charged at 18%, then proportionate ITC to the extent of turnover of such services charges is available.

Where the benefit of exemption of INR 20,000 is not availed i.e. rent amount, in case of renting services, or declared tariff, in case of hotels etc., is more than INR 20,000 per person per month, then all the ITC of inputs and input services would be available to claim. However, if the food and beverages services are charged at 5%, then ITC on input and input services exclusively used for supply of such services would not be available. Further, such supplies, even though GST is charged at 5%, would be treated as exempt supplies and also, registered person is required to reverse the ITC to the extent of exempt turnover of food and beverages services.

Separately, if food and beverages are charged at 18%, then ITC on inputs and input services exclusively used for providing food and beverage services would be available in full and no proportionate reversal is required to be made.