IIAS SCHOOL OF MANAGEMENT

Affiliated to:
Maulana Abul Kalam Azad University of Technology

PROJECT REPORT
on

“A study on impact of Taxation on travel and

Tourism industry”
“Submitted for the sixth semester internship project”

(Bachelor of Business Administration (Accountancy

and Taxation and Auditing) BBA-ATA

Academic Year 2021 – 22

Submitted By: Bibek chettri

Roll no: 33851421015

Univ. Regn. No:

1
 ACKNOWLEDGEMENT
I take this opportunity to express my gratitude to the people who made it possible for
me to complete this project.

I am highly indebted to the administration of IIAS school of management and the

respected principal sir Prof. Dr.Angshuman Chatterjee for providing all the
infrastructural and related facilities as and when required for in interrupted
functioning of the paper.

Further I would thank to all my classmate, teacher for providing a constant support,
guidance all though which motivated to take up such a topic an explore it well. I
express my sincere gratitude to all for step-by-step guidance through the project.

My heartfelt gratitude to my parents for the sacrifices they made to facilitate me

complete this course and to my friends for their constant support.

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 INDEX

1. Acknowledgment
2. Abstract
3. Introduction
4. Keywords
5. Literature review
6. Defining tourism
7. Economic impact/ contribution of travel and tourism
8. Tourism sector contribution to GDP
9. Taxation on tourism
10.Indian tourism sector : before and after GST
11.Key issue facing the tourism sector
12. impact of taxation on different sector of taxation
13.impact on tour operator
- Air travel agent
- Rail ticket agent
- Rent a cab service
- Tour package
14.Impact on hotel industry
- Impact of GST o hotel sector
-GST effect on Restaurant
15.Composite scheme
16.Conclusion
17.Reference

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4
Abstract:
The purpose of the project is to ascertain the impact of taxation rates on tourism
industry. The travel and tourism represent the world third largest export avenue in
terms of global earning. In tourism industry the price electricity of demand is very
high and any change in price structure may influence the inbound travel deciding.
The research method is adopted is example based. The actual data were collected
from different government and private website, I have collected more than 50
samples from different website though internet.

The research has some limitation. The algorithm is limited to internet based from
official and unofficial website data obtained to represent sample of tourism industry.

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INTRODUCTION
The travel and tourism are one of biggest and fastest growing industries all over
the world from domestic to international level. The travel and tourism sector
contributed 7.6% to global GDP.

Tourism is the voyage of people to various place or countries outside their

comfortable surroundings for various purpose like leisure, business. It can be
social, economic phenomenon. Individuals who travel to different location are
called tourists and tourism comes with expenditure. Tourism is the process and
technique of spending time away from home in search of pleasure, recreation
and relaxation while making full use of the travel arrangement od administration.
Goods and service tax in India dates back 2000s and culminates in 2017 with
four bills relating to it becoming an act. The government introduced multiple GST
rates viz 3%, 5%, 12%, 18%, 18%. The factor affecting the GST rate, exemption,
technological infrastructure, treatment of subsidies, place of supply rule. France
was the first country to implement GST to reduce tax evasion. 140 countries have
implemented GST with some countries having dual GST. Taxed levied on inbound
tourism is amongst the highest the country. Major reason for India lapsing foreign
tourist to competing south east Asian countries.

Tourism is a complex industry with numerous sub sectors. It is hard to define

exactly what constitutes a tourism product and how to tax it. Tourism is not a
single commodity but rather a collection of many different goods and services
provided by wider range of supplies.

The Tourism value chain encompasses a variety of different actors, including

hotels, air carriers and transport companies, tour operators, travel agents, rental
agencies and countless suppliers from other sectors.

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KEYWORDS:

1. Tourism: tourism is a social, culture and economic phenomenon which

entails the movement of people to countries or place outside their usual
environment for personal or business/professional purpose.
2. Inbound: inbound tourism is when visit a country, usually for leisure,
business, or other reasons, and stay there for up to 12 months
3. Outbound: outbound tourism is when a resident of a country travel to a
different country for less than one year, for business, leisure, or other
personal reason.
4. Place of Supply: as per Section 2(86) of CGST Law, ‘place of supply means,
— Place of supply as referred to in Chapter V of the Integrated Goods and
Services Tax
5. Location of Supplier of Services: As per Section 2(71) of CGST Law,
‘location of the supplier of services’ means,— (a) where a supply is made
from a place of business for which the registration has been obtained, the
location of such place of business; (b) where a supply is made from a place
other than the place of business for which registration has been obtained (a
fixed establishment elsewhere), the location of such fixed establishment; (c)
where a supply is made from more than one establishment, whether the place
of business or fixed establishment, the location of the establishment most
directly concerned with the provisions of the supply; and (d) in absence of
such places, the location of the usual place of residence of the supplier.
6. Location of Recipient of Services: As per Section 2(70) of CGST Law. ‘location
of the recipient of services’ means,— (a) where a supply is received at a place
of business for which the registration has been obtained, the location of such
place of business; (b) where a supply is received at a place other than the
place of business for which registration has been obtained (a fixed
establishment elsewhere), the location of such fixed establishment; (c) where
a supply is received at more than one establishment, whether the place of
business or fixed establishment, the location of the establishment most

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 directly concerned with the receipt of the supply; and (d) in absence of such
places, the location of the usual place of residence of the recipient.
7. Mixed Supply: As per Section 2(74) of CGST Law, ‘mixed supply’ means two
or more individual supplies of goods or services, or any combination thereof,
made in conjunction with each other by a taxable person for a single price
where such supply does not constitute a composite supply
8. Input Tax: As per Section 2(62) of CGST Law, ‘input tax’ in relation to a
registered person, means the central tax, State tax, integrated tax or Union
territory tax charged on any supply of goods or services or both made to him
and includes.
9. ITC: input tax credit means the GST paid by a registered person on the
purchase of goods or service used for the furtherance of business. The input
tax credit can be used to offset the GST liability on the supply of goods or
services by the registered person: input tax credit means the GST paid by a
registered person on the purchase of goods or service used for the
furtherance of business. The input tax credit can be used to offset the GST
liability on the supply of goods or services by the registered person

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LITERATURE REVIEW
India has a rapidly growing Tourism industry both in terms of volume and foreign
exchange earnings. The net export in tourism industry is as high as 80%, which
shows the importance of this industry in Indian economy.

Amandeep Kaur (2018), present “A Research paper on Impact of GST on Indian

Economy”. He studied that it is the biggest ever change in tax structure of India.
There is a fall in prices of Auto Commercial Vehicle, two wheelers, Small cars,
essential items, Footwear, Building Materials etc. and education, healthcare are
going to be exempted from GST but on the other hand, price of some other goods
and services increased after GST like Hotel room rental, Restaurants and fine dining
and Branded Apparels.

Mr. Gajanan Dhanu Rathod, Mr. Rakesh Kumar (2018), studied “The Negative
Impact of GST on Indian Economy”. They find that Taxation system is very important
for the economy they maintain equity in income group. In context of India, second
high tax rate in the world and its devastating impact on poor people, Consumption
and productions of goods and services are rising and because of multiplicity of taxes
in current tax system, organization complexities and conformity cost is also
increasing. At present Indian economy requires a major change in the taxation
system

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Defining Tourism
Tourism is the act of travelling to a different location for spending time away from
home in search of pleasure, recreation, relaxation, business, fun. It can be social
cultural or economic phenomenon. Individual who used to travel different part world
location are called Tourist. Tourism comes with tourist expenditure.

Travel means moving from one place to another to enjoy life, it can be long or short
distance, overseas or domestic travel and it cover wider variety of different travel
purpose.

Tourism is a complex industry with numerous sub sectors. It is hard to define

exactly what constitutes a tourism product and how to tax it. Tourism is not a single
commodity but rather a collection of many different goods and services provided by
wider range of supplies.

The Tourism value chain encompasses a variety of different actors, including hotels,
air carriers and transport companies, tour operators, travel agents, rental agencies
and countless suppliers from other sectors.

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Economic Impact/ Contribution of Travel & Tourism
Travel and tourism is one of important economic activity which apart from its direct
economic impact, has a cascading economic impact on other associated industry
segments. The sector has significant positive indirect and induced impact on the
economy. Components of total contribution to Gross Domestic Product are

 Direct Contribution: The direct contribution of travel and tourism to GDP is

calculated from total internal spending by netting out the purchases made by
different parts of the tourism sector such as hotels, airlines, airports, travel
agents and leisure and recreational services that deal directly with tourists.

Internal spending is total spending within a particular country on travel and tourism
by residents and non-residents for business and leisure purposes as well as
government spending on travel and tourism services, directly linked to visitors such
as cultural and recreational services.

 Indirect Contribution: The Indirect contribution includes the GDP and jobs
supported by:
 Travel & Tourism Investment spending – an important aspect of both
current and future activity that includes investment activity such as
purchase of new aircraft and construction of new hotels.
 Government Collective spending which helps Travel and Tourism
activity in many ways as it is made on behalf of the community at large –
e.g. Tourism marketing and promotion, aviation, administration, security
services, resort area security services, resort area sanitation services etc.
 Domestic purchases of goods and services by the sectors dealing
directly with the tourists – including purchase of food and cleaning
services by the hotels, of fuel and catering services by airlines and IT
Services by travel agents
 Induced Contribution: It consists of the GDP supported by the spending of
those who are directly or indirectly employed by the travel and tourism
industry. This measure the impact of income earned directly and indirectly as
they are spent in the local economy.

source: WTTC Travel & Tourism Economic Impact – India 2013

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 Tourism Sector contribution to Gross Domestic
Product World wide

Share of GDP from Travel and Tourism

14.00%

12.00%

10.00%

8.00%

6.00%

4.00%

2.00%

0.00%
2019 2022 2023 2033

In 2022, the share of travel and tourism total contribution to global gross domestic
product (GDP) experienced a decline e of 2.8% points compared to 2019, the year
prior to the onset of the corona virus (Covid- 19) pandemic.

Overall, these industries represent 7.65 of the global GDP in 2022. That year, the
total contribution of travel and tourism to the global GDP amounted to 7.7 trillion U.S.
dollars

The direct contribution of Travel and tourism to world GDP was 10.4% in 2019
reflecting a decline of 2.8% due covid pandemic was 7.6%in 2022 and almost certain
recovery in 2023 with9.2% raise of 1.6% more than 2022.

The direct contribution of travel and tourism to world GDP is expected to grow by
2.4% by 2033. The number reflect economic activity generated by industries such as
hotels, travel agents, airline and others passenger transportation service.

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The total contribution of travel and tourism to GDP includes the direct as well as
indirect and induced contribution

Total Number of Foreign Tourist Arrivals & Foreign

Exchange Earnings
Tourism is an important sector of Indian Economy and contributed substantially in
the country foreign Exchange Visitor Exports or the flow of inbound tourists is a
key component of the direct contribution to Travel and Tourism Sector.

FTAs in India (in million)

12
10.93
10.56
10.04
10
8.8

6.19 6.43
6

4
2.74
2 1.52

0
2016 2017 2018 2019 2020 2021 2022 2023

Total Inbound Tourists in Millions

Estimated of Foreign Exchange Earnings (FEES)

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 Year FEEs from Tourism
in India (in Rs. Crore)
2016 1,50,750
2017 1,78,189
2018 1,95,312
2019 2,16,467
2020 50,136
2021 65,070
2022 1,34,543
2023(jan-sep) 1,66,660
250,000.00

200,000.00

150,000.00

100,000.00

50,000.00

-
2016 2017 2018 2019 2020 2021 2022 2023

 FEEs from Tourism in India (in RS. Crore)

Foreign tourist arrivals in India stood at 31.33 laks in the first four months of calendar
year 2023, up from 11.77 laks arrivals in the year ago period, according t the data
from ministry of tourism. despite the raise, foreign tourist arrivals remained lower
than the pre-covid levels of 2019, when the number stood at 39.54 laks in the
comparable period.

Taxation and Tourism

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 Tourism is a composite of various sub-industries. It is difficult to define what
constitutes tourism product and how to tax it. Tourism is not a single
commodity but rather collection of many different goods and services provided
by a diverse set of supplies. The tourism industry includes a verity of player,
such as hotels, restaurants, transportation companies, air carriers, and tour
Operator.

Taxes and Fees Levied at different points of Total Tourist Expenditure

Taxes and Commission International Domestic Lodging Out of

fees travel travel pocket

 Visa fees  International  Airline Ticket  Local  Room  Fees and

and cost travel agent  Fuel Transpor Fares permits for
 Airport  Domestic Charges t Costs  Hotel site
taxes travel agent Tariffs  Transit Taxes access
 Commute to fees  Local  Local
and from fees Tours
airport  Food and
others
Ministry of tourism government of India

Indian tourism sector: Before and after GST

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The tourism industry is not only a high foreign exchange earner, but it is also among
the leading tax generators for the country. Multiple taxes are levied in India for the
services or product by both central and state govt.

Taxes on inbound tourism are the highest i the country, which is one of the reasons
India losing foreign tourist to competing south east Asian countries. The tourism
industry in India is subject to a verity of taxes imposed by the both central and state
govt.

In India, before GST or in the indirect taxation system, the state governments first
charge the VAT, luxury tax and entertainment tax, whereas the central government
would impose a different set of taxes such as excise duty, service tax, customs duty
and central state tax. All these taxes are levied on accommodations services,
restaurants services, banquet service etc.

Before GST, all these taxes caused a cascading effect of ta, and the ultimate burden
was lied on tourist or customers. Considering these multiple incidences of taxation,
the overall taxation was reaching in the range of 20.5 % to 27% that was considered
very high. More than this, tax rates and the method of charging this tax was different
across all state of India. which added confusion and complexity in Handling it

Goods and service tax (GST) has come into effect on 1 July 2017as the new
innovatory indirect tax system, which has been the utmost aspiring indirect tax
reform in decades

The enactment of GST is a game changer and will boost the ease of doing business
in India. The GST is overseen by a GST council, whose chairman is Indian finance
minister.

GST are taxed in the following rates under GST: 0%, 5%, 12%, 18%, and 28% as
per rule.

The tourism and hospitality sector, hopes to benefit from standardized and uniform
tax rates, as well as easier and better utilization of inputs, under GST system.
Following were the GST rates of the hospitality industry on the basis of hotel room.

Room Rent Before GST After GST % CGST SGST

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 %

Below 1,000 0% Exempt - -

1,000 – 2,499 12% 12% with full 6% 6%

ITC

2,500 – 7,499 18% 12% with full 6% 6%

ITC

7,500 Above 28% 18% with full 9% 9%

ITC

Initially, when the GST was implemented in the country and the rates seems to be
very high, it was 0% on hotels with daily room tariffs of Rs. 1,000, 12% on those
charging greater then 1000 but less than RS. 2500 per day. 18% tariffs on those
charging greater than 2,500 but less than RS. 7,500 and those who are charging
more than 7,500 per day must be paid 28% of GST. Which later were criticized by all
stakeholders associated with tourism industry. Their viewpoint was that heavy
taxation could impact negatively on their respective business and ultimately results in
the leakage in revenues.

Key Issues facing the Tourism Sector on various

fronts are as under:

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➢ High Multitude and Incidence of Taxes on account of taxation at multiple levels
and absence of seamless input credit flow.

➢ Lot of business in this sector gets generated through online mediums. Significant
amount of clarity is required in the existing laws to deal with e-commerce players and
aggregators.

➢ Lack of Proper Infrastructure in terms of access, connectivity and services and

many unorganized players in the industry.

➢ non-availability of skilled & Semi skilled man power required for the industry to
attract foreign tourist as well as promote local tourism specially Eco Tourism & Rural
Tourism which lacks professional approach towards service and customer
satisfaction

➢ Lack of Marketing, Branding & Promotion efforts for the rural, cultural and Eco-
friendly remote locations and their conservations

Impact of taxation on different sector of Tourism

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Assigning GST rates for tourism related businesses, particularly hotels and
restaurant, against their turnover is s reformist move by the government. One of the
major benefits of GST to the tourism sector and other industries with tourism is that it
element multiple taxation by incorporating all taxes under one single entity. The
incorporating of all taxes increases the rase of doing business in the country with the
provision of standardized tax rates. This implementation of GST in the country helps
the tourism sector to boot by harmonizing taxes which reduce the costs for customer.
Under GST, the place of supply is shifted to the place where the immovable property
is situated in case of hotel, restaurant and monuments for sigh seeing. the food and
beverages industry could be the leading beneficiaries of GST within the tourism
sector. It is anticipated that GST result in saving of more than 15%-20% on the
overall bill. Besides all these, there are some negative aspect of GST are there; the
first negative aspect of GST is the multiple registration system. Service providers will
have to get registration in each state from where they provide services. The second
negative impact of GST on the tourism industry or other related industries is the
technological burden and cost of operation, as each industry is compulsory needs to
manage its accounts and filed returns monthly or quarterly. The third disadvantage of
GST om tourism is that liquor is not included in GST to ensure continuous credit for
the tourism industry. The exclusion of liquor from GST regime undermines the very
purpose of implementing a uniform tax structure across the country. The impact on
different sector as follow

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Impact on tour operator
Tour operator is any person engaged in business of planning, scheduling, organizing
or arranging tours by any mode of transport & includes any person engaged in
business of operating tours in a tourist vehicle/contract carriage covered by a permit.
Thus, Tour operator is a legal entity, engaged in the business of buying individual
travel component of tourism industry and supplying them to the ultimate consumer
as one homogeneous package. Thus, tour operator is a manufacturer of whole
tourism package or experience and sells either directly or indirectly to the ultimate
consumer. There are five different types of tour operators. They can work in single
field or multiple fields.

The GST has also had an impact in the tourism industry. According to GST regime,
air travel is taxed at a higher rate as compared to the previous service tax regime.
The GST rates for air travel are 5% for economy class and 12% for business class.
This increment in tax had caused to higher costs for air travel that may affect both
international and domestic tourism. The higher costs may make air travel less
affordable for tourists, leading to a decrease in the number of tourists visiting India.

Furthermore, the GST has also affected the airline industry’s working capital, as they
need to pay GST on inputs and then claim input tax credit later. This has resulted in
an increase in the costs of operation for airline, which may lead to higher ticket price
for consumer. Overall, the impact of GST on air travel may lead to higher costs for
tourists, making air travel less affordable.

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  Registration limit under tour operator under GST
Every supplier whom aggregate turnover in financial year exceeds rupees 20 lakhs
shall be liable to be registered under GST. The limit is 10 lakhs in case of Special
category of state

Further threshold limit of RS. 20lakhs is not applicable in following cases

 Person maki ng any interstate taxable supply

 Person who makes taxable supply of goods and services or both on behalf of
other taxable person whether as an agent or otherwise, such as Air travel
agent.

Activities include in Tour operator under GST

 Air travel agent

 Rail travel agent
 Rent-a-cab service
 Tour package-inbound and outbound
 Hotel booking service
 Visa and password assistance
 Travel insurance
 Other service (amusement facilities, joy ride like camel ride, elephant
ride, horse ride, boat ride, jeep safari, portal service, guide service etc.

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 1. Air travel agent
Air travel agent will have two options to invoices. They can choose according
to matter.

Commission

Base Fare
Commission Basis

Domestic - @18%
International

-@5% - @10%

@18% @18%

Let’s take example to understand

Particular Amount (Rs)

Air travel (domestic) 10000
Base fare 9500
Amount collected 12000

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 Additional note: Mark up (service charge) Rs.2000 and commission from airline is
Rs. 400.

Sol:

1. Commission model 2. Base fare

Particulars Amount Rs. Particulars Amount Rs.

Ticket 10000 Base fare 9500
Commission 400@18% 72 Slab @5% 475
Mark up 2000@18% 360 @18% of slab 475@18% 85.5
Mark up 2000@18% 360
Total tax Paid to Rs.432 Rs.445.5
Govt

 Full input tax credit is available

 It depends on commission received from air line when agent get more
commission, they base fare when they get less they use commission model.
 Base fare: a base fare is the price of airline ticket before fees, taxes, and any
surcharges are added

 Place of supply for an Air Travel Agent (ATA) for booking tickets to Pax

When an Air Travel Agent provides services to a person who is:

1. Located in India and the person is registered under the GST law then; the place of
Supply shall be the location of service receiver;

2. Located in India but not registered under the GST Law but his address is available
on records then the place of Supply shall be the location of the service receiver;

3. Located in India but not registered under the GST Law and his address is not
available on records then the place of Supply shall be the location of the service
provider;

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 4. If in case of the Air Travel Agent who is located in India but the Origin and Location
of Airlines is not from India and the destination as well as location of passenger is not
in India,

Then in the given case neither the Airlines nor the passenger will be registered
under GST and nor will their address be available from the records, hence in the
given case the place of supply shall be the location of service provider i.e. the
location of the Air Travel Agent which is in India and hence this transaction would be
liable to Tax.

Examples for place of supply in case of an Air travel Agent where ATA receives
processing fees / Service charges from the Passenger (Pax):

Location of Air Travel Location of the Supply for the Tax to be charged
Agent recipient (Pax) Air Travel Agent by the Air Travel
Agent
Delhi Delhi Delhi CGST/SGST
Gurgaon (Haryana) Delhi Delhi IGST

FEEs from Tourism in India (in RS. Crore

Examples for place of supply in case of an Air Travel where ATA receives
Commission from the Airlines:

Location of Air Location of the Supply for the Air Tax to be charged by
Travel Agent recipient (Pax) Travel Agent the Air Travel Agent
Delhi Delhi Delhi CGST/SGST
Delhi Gurgaon (Haryana) Gurgaon (Haryana) IGST
Delhi London (UK) Delhi CGST/IGST
Note: In case an air travel agent opts to pay GST on basic fare module, he is not
required to pay GST on commission received from the airlines as well as service
charges / booking charges / management charges from the customer /
passenger. (Domestic Booking)

 Segment Pay-outs / commission/ incentives from

CRS/GDS

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 Air Travel Agent also earns Segment Payouts / commission/ incentives from
CRS/GDS like Amadeus, World span, Galileo, Abacus for using their software for
making booking in Airlines reservations systems which also would be liable for
taxation under GST Law

 Place of supply of services

1. In case the services are provided by the Air Travel Agents to Indian software
companies, then the place of supply of services shall be the location of services
receiver i.e., place of registration of Indian Software Company.

2. In case the services are provided by the Air Travel Agents to foreign software
companies, then the agent would fall within the definition of “intermediary” AND the
place of supply of services shall be the location of services provider i.e., place of Air
Travel Agent.

2.Rail travel agent

GST rate will be 18% on service charges collected from passengers. No commission
is paid by railways, so, no other option rate is applicable in the case.

SAC in the case of Rail travel agent will be 9967.

Here place of supply will be the location of service recipients.

In both domestic and international the GST is @18%

There are 2 methods of invoice

 if the invoice not showing margin separately then tax liability shall be on the
grass amount charged.
 If invoice showing margin separately then tax liability shall be @18% of
margin show only (rule 33)

Rule 33 – Value of supply of services in the case of pure agent

(D) received only the actual amount incurred to procure such goods or service in
addition to the amount received for supply he provide on his own account.

3. Rent-A-Cab service

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In cab service commission basis of GST applicable with rate of @18%

 Net cost and mark up basis

Case 1: where the cost of fuel is included in the consideration charges: GST
Applicable rate will be @5% without ITC or @12% with ITC.

Case 2: where the cost of fuel is not included in the consideration charges: A Cab
operator is required to pay GST@ 18% with ITC.

SAC in the case of Rent-A-CAB service is 9967.

There are 2 methods of invoicing if operator hired a cab

 If the invoice not showing margin separately then tax liability shall be on the
gross amount charged
 If invoice showing margin separately then tax liability shall be @ 18% of
margin shown only (rule 33)

4. Tour package -Inbound and Outbound

Inbound tour package: Tour organized by the Tour Operator, within India
for the tourist coming from outside India is known as inbound tours.

1. Principal basis: If tour is on Principal basis i.e. on its own account has
done the various booking and then raises bill on the client, then GST @5%
with no ITC (@18% with ITC) & the place of supply shall be location of
performance of service i.e. in India
Note: If Tour operator avail any services from another Tour Operator as input
service, then ITC on such input services which is similar to his output can be
taken. (Notification No. 1/2018- Central Tax (Rate), dated 25 th January, 2018)
(5% on total value not mark-up)

2. Commission basis: If the tour is on Commission basis then taxable @

18% with ITC & place of supply shall be location of Service Provider i.e.in
India

3. Service fees on client basis: If hotel/ transporter issues invoice

directly in the name of the client and the tour operator issues invoice only for

26
 its service fees to the client. The agent will issue an invoice on the client
disclosing separately for its service charges and amount charged by the hotel/
transporter for booking. The agent can charge GST @ 18% of service charge
only with ITC or GST @5% without ITC.

Outbound tour package: Tours organized by the Tour Operator, outside

India, for the tourist going outside India is known as outbound tour.

1. Principal basis: If tour is on Principal basis i.e. on its own account has
done the various booking and then raises bill on the client, then GST @5%
with no ITC (@18% with ITC) & the place of supply shall be location of
performance of service i.e. in India
Note: If Tour operator avail any services from another Tour Operator as input
service, then ITC on such input services which is similar to his output can be
taken. (Notification No. 1/2018- Central Tax (Rate), dated 25th January, 2018)
(5% on total value not mark-up)

2. Commission basis: If the tour is on Commission basis then taxable @

18% with ITC & place of supply shall be location of Service Provider i.e.in
India

3. Service fees on client basis: If hotel/ transporter issues invoice

directly in the name of the client and the tour operator issues invoice only for
its service fees to the client. The agent will issue an invoice on the client
disclosing separately for its service charges and amount charged by the hotel/
transporter for booking. The agent can charge GST @ 18% of service charge
only with ITC or GST @5% without ITC

Note: Outbound tour sold to a foreigner for visiting another foreign country & the
payment received in foreign country is exempt from GST.

Impact in Hotel Industry

27
The second important vertical is Hotel and Restaurant services. The word “Hotel”
owns its genesis to the French word “hotel”, which refers to a French version of the
townhouse. Directorate of Economics and statistics defines it as “A hotel provides
temporary lodging, accommodation with or without arrangements for meals, other
prepared food and refreshments. Such accommodation may be provided in furnished
or in unfurnished rooms. Hotels may also provide room service, lounge facilities,
conference room, entertainment and other facilities.” In this paper this definition is
relied upon. The development of hotel industry is an indicator of economic and
tourism development of that area. As a part of tourism industry, it is a major
employment generator and foreign exchange earner. The Hotel market in India is
expected to witness a raise in revenue with a projected value of us $9.13bn by 2024
with market expected to exhibit an impressive annual growth rate of 5.41% as per
CAGR 2024-2028 ( ) contributing to a market volume of US$11.27bn by 2028.

Additionally, the number of users in the hotel market is expected to reach 64.74m
users by 2028, with a user penetration of 3.8% in this year 3.8%, which is expected
to increase to 4.3% by 2028. The average revenue per user (ARPU) is expected to
be US$167.80. moreover, it is projected that 61% of total revenue in hotel market will
come from online sale by 2028. Indian hotel market is experiencing a shift towards
eco-friendly and sustainable practice to cater to the growing demand for responsible
tourism.

The major drivers of this growth are rapidly increasing disposable income of Indian
Middle Class coupled with rapid Urbanization, Western Lifestyle and Employee
Generation. In pre-GST era the hotel Industry had to pay various type of taxes VAT,
Luxury Tax and Entertainment Tax, Excise Duty on liquor to the State Government

and Service Tax and Customs duty to the Central Government.

Impact of GST

Impact of taxes on electricity

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 Impact of taxes on alcohol

Impact of taxes on transportation

Impact of Cess

Impact of taxation on hotel industry

With the advent of GST and merger of various taxes in to it. GST on hotels depends
up on Tariff rate of hotel room on per day basis. The most important aspect of
Ailment of Input Tax credit is that recipient of hotel service should be situated in
same state.

Impact of GST On hotel sector.

 Multiple taxes is replaced by single tax, therefore lower tax rate helps in
attracting more tourists in India.
 Centralized registration is compulsory in each state where they providing hotel
facility on own account or through agency.
 Provision for GST audit if the total turnover is more than prescribed limit.
 Hotel and restaurant have to make appropriate policy on discount offers and
policies in advance, it shall be a part of documentation.
 Every receipts/ invoice inward and outward supplies have to be uploaded in
the system.
 Alcohol and electricity are out of the preview of GST. Hotel industry would not
be able to avail the input credit on the two items which will have a negative
impact on this sector.

Tax rate under GST for hotels and restaurant.

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 Room accommodation: room rent less than 1000 is exempted from GST, rent
from 1000 to 2500 is at12%, rent from 2500 to 7500 at 18% and room rent
more than 7500 at 28%.
 Supply of food: For non-AC restaurant 12% is levied on food bill and for AC
restaurant 18% is levied on food bill.
 Supply of alcohol: All restaurant who serve alcohol is chargeable at 18% on
bill regardless they are AC or non-AC restaurant.
 Rent a cab: if fuel cost is borne by service provider at 5% and fuel cost is
borne by recipient at 18% is charged.
 Business support services, laundry service, beauty parlour, gymnasium
service, club facility charged at18%
 Rent premises for event and conference 18%
 Tele communication facility 18%
 For five-star hotel GST rate is 28% / 18%. Star rating is irrelevant for
determining the applicable rate of GST. Declared room terrific is irrelevant
 Less 7500 per unit per day is 18%
 More than 7500 per unit per day is 28%
 Restaurants with no air conditioning and no license to serve liquor of GST rate
is 5%, applicable to supply of foods/drinks in a restaurant not having a facility
of air-conditioning or central heating at any time during the year and not to
have license to serve liquor.
 Restaurants with air conditioning and no license to serve liquor of GST rate is
18% applicable to the taxable value supply of foods/drinks in a restaurant
having a facility of air-conditioning or central heating at any time during the
year.
 Restaurants with license to serve liquors applicable of 18% GST to the supply
of foods/drinks in a restaurant having a license to serve liquor.
 GST rate for marriage hall, banquet hall, conference center etc., attract 18%
GST rate on bundled service by way of supply of food or any other article of
human consumption or any drink, in a premises b together with renting of
such premises.

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  GST rate for outdoor catering is applicable of 18% GST for the supply of

foods/drinks in outdoor catering.

GST impact on regular food bill before GST and after

1. Before 2. After

BEFORE AFTER

Food corner Food corner

Bill no : Bill no :
Table no: 2 2012 Table no: 6 2022
Date : Date :

Pric Pric
Dish Qnt. e Dish Qnt. e
…... xx xxx …... xx xxx
….. xx xxxx ….. xx xxxx
xxx. xxx.
….... xxx x ….... xxx x
… x xxx … x xxx

400 400
Total 0 Total 0
service charge Service
@10% 400 charge @10% 400
Service tax
@5.6% 224 GST@18% 720
KKC @0.2% 8
SBC @0.2% 8
VAT @14.5% 580

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 522 512
Total amount payable 0 Total amount payable 0

 Krishi Kalyan cess (KKC)

 Swachh Bharat cess (SWC)

GST EFFECT ON RESTAURANT

The smaller outlets like food courts , dhabas, coffee bars cater to large
segments of population on daily basis. The maximum people who fall in
this business category earn modest income and thus the new tax format is
likely to come under criticism. All kinds of hotels whether it is AC or non-
AC will definitely collect the higher rate and this will bring an overall price
hike in food items.

According to the latest GST update budget, hotels that are charging Rs
1000 per day for rooms are exempted from taxes. Hotels that are charging
Rs 5000 or more room tariff per day will have to pay 28 per cent GST
which is a big threat to country’s developing tourism and hospitality.
Restaurants in such hotels too, will have to pay 28 per cent GST.

Under the current tax regime, restaurant business owners do not get any
option to adjust the output service tax liability with the credit of input VAT
on goods consumed, hence restaurant owners are in no mood to cheer for
the GST bill.

Price hike in food can be expected in the upcoming days. If you are very
fond of eating outside, you might now need to check your pockets when
you plan on it.

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NEGATIVE IMPACT OF GST ON TOURISM INDUSTRY
Here few negative lists below:

 Issue of place of supply: In GST place of supply has been defined

as place where the immovable property is situated. This has increased the
revenue of state of all those states where hotel, sightseeing’s, monuments etc
are situated, but at the same time tour operators cannot take ITC as he
cannot register in each state. Similarly, in case of outbound travel, the states
having maximum sea, airports etc. has benefited.

 Issue of Registration: GST has raised the issue of multiple

registration. The different verticals of the industry need to take registration in
multiple states and maintain records for that state.

 Problems in IT infrastructure: The GST is based on IT

infrastructure. Thus, each record, returns, invoices, E-way bill needs to be
generated on GSTN, which is a cumbersome process to do. Apart from this it
is so complex that a normal businessman either has to employ a trained staff
or take the services of consultants and CA. Thus, cost of compliance is very
high.

 Loss of business due to high GST rate : Due to high GST

rates the foreign tourist is going to other south-eastern countries and avoiding
India altogether. This has resulted in loss in foreign exchange earnings and

job opportunity.

COMPOSITION SCHEME IN TOURISM SECTOR

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Composition scheme can be availed in tourism sector by the supplier who is
engaged in providing any service or in any other manner whatsoever, of goods,
being food or any other article for human consumption or any drink (other than
alcoholic liquor for human consumption). Person whose aggregate turnover in the
preceding financial year did not have 50 lakh rupees and not having any Inter State
Supply and was neither a casual taxable person nor a nonresident taxable person,
can avail the benefit under composition scheme. Rate of Tax in case of Composition
scheme shall not exceed 2.5% of CGST as well as 2.5% of SGST totaling to 5%.
Composition scheme proposed for restaurant, catering business which will exclude
many small players out of the tax credit chain and may result into additional
cascading effect in case of B2B transactions. Assesses opting for composition
scheme shall not be entitled to take any credit. However, they need to pay Tax under
RCM if they have any inward supply from specified person and that shall add on to
their cost. Person foregoing negligible amount of input tax credit, can benefit by
opting for composition scheme since their total output liability shall reduce to 5%
(2.5% CGST+ 2.5% SGST) as against current liability of 9% - 10%.

Conclusion:
In this study has shed light on the complex relationship between taxation and the
travel and tourism industry. Through an extensive review of literature and empirical
analysis, several key findings have emerged.

Firstly, taxation has a significant impact on tourist demand, with higher tax burdens
often leading to decreased visitor numbers and spending in affected destinations.
This underscores the importance of carefully balancing tax policies to ensure
competitiveness and attractiveness in the global tourism market.

Secondly, taxation plays a crucial role in influencing investment decisions within the
tourism sector. High taxes on tourism-related businesses may discourage investment

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and hinder industry growth, while tax incentives can stimulate investment and
enhance the competitiveness of tourism destinations.

Furthermore, taxation is closely linked to destination competitiveness, with favorable

tax policies contributing to increased tourist arrivals and revenue generation.
However, excessive taxation can erode a destination's competitive edge and hinder
its ability to attract visitors and investment.

Additionally, taxation can be utilized as a tool to promote sustainable tourism

practices, through environmental taxes and levies aimed at mitigating the
environmental impact of tourism activities. However, the effectiveness of such
measures requires careful consideration of their potential economic and social
implications.

Overall, this study contributes to a deeper understanding of the role of taxation in

shaping the dynamics of the travel and tourism industry. By providing valuable
insights and recommendations, it aims to inform evidence-based policy-making and
promote sustainable growth and development in the global tourism sector.

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