New Delhi: Whether you are looking to spend your day at a 5-star hotel or you go for a cheaper alternative, the GST rate would be based on the room tariff.

The Finance Department on Tuesday explained that Goods and Service Tax at 18% would be imposed on accommodation in a hotel, including the 5-star hotels, where the declared tariff is up to INR 7,500.

This clarification came from the CBEC (Central Board of Excise and Customs) in response to the reports that five-star establishments and luxury hotels establishments will be taxed at 28%. Therefore, the star rating of hotels is now irrelevant to determine the appropriate GST rate. All the confusions and dilemma whether 5-star hotels would attract 28% GST is now clarified with the announcement.

At the beginning of this month, GST (Goods and Services Tax) came into force as the country’s biggest tax reform, looking to unify the complex and cumbersome indirect taxation system.

As per the new regulation, hotel rooms charging below INR 1,000/ day would be exempt from tax, those charging below INR 2,500 would attract GST at 12%, whereas rooms with tariffs ranging between INR 2,500 to INR 7,500 would attract GST at 18%. The highest rate of GST of 28% is kept for luxury hotel accommodations with tariffs exceeding INR 7,500/day.

There was some uncertainty on whether the 5-Star accommodation with tariff less than INR 7,500/day would be taxed 18% or 28%. The Government has rightly clarified that any hotel, including 5-Star hotel, having a tariff of below INR 7,500 would attract GST rate of 18%. This announcement will put the entire controversy to rest.

Most of the tax professionals have hailed this approach of the government to proactively addressing the concerns of the industry over GST implementation. What is more admirable is the way in which the union government is apprehending industry concerns and issues and is proactively clarifying them.