Only 16% of consumers who booked hotel room under ₹7500/day tariff received full benefit of GST rate reduction: LocalCircles

Only 16% of consumers who booked a hotel room with a tariff of under ₹7500/day said that they received full benefits of reduced GST on hotel rooms from 12% to 5%, according to a new survey by citizen engagement platform LocalCircles.

On the other hand, 56% of the respondents stated that only a partial benefit of the reduced GST on hotel rooms was passed on to them, whereas 28% of the respondents reported that no benefit was passed on to them. With many hotels already pricing their rack rates much higher than the rates they generally sell their rooms for, the chances of consumers experiencing the benefits of a rate decrease are slim. According to LocalCircles, consumers in community discussions have indicated that some hotels are reducing discounts from the rack rate and implementing a 5% GST, thereby leading to a slightly lower or similar room rate compared to pre-GST 2.0.

LocalCircles reported that the survey garnered over 17,000 responses from consumers across 288 districts in India. 64% respondents were men, while 36% respondents were women. 43% of respondents were from Tier 1, 29% from Tier 2, and 28% from Tier 3, 4, and 5, as well as rural districts. 

As part of the GST rationalisation reforms, the GST rate on hotel rooms with a tariff of INR 7,500 or less per day was reduced from 12% to 5%. As a result, hotels with rooms in this category are required to lower the final price paid by consumers, reflecting the lower tax rate. They cannot increase their base tariff to negate this 7% GST rate reduction.

Under the rules, hotels in the mid-scale and budget segments are not eligible to claim the input tax credit (ITC) for power, water supply, etc. As per LocalCircles, the hotels are requesting the government to give ITC on the 5% tax slab for room rates up to ₹7,500 as a special case.

The citizen engagement platform also revealed that, in the interim, a ruling in September found a hotel guilty of profiteering by the GST Appellate Tribunal (GSTAT) after it increased its base rate price following the GST rate cut, rather than lowering the final price for customers. The hotel was ordered to deposit the profiteered amount, along with interest, into the Consumer Welfare Fund.

LocalCircles revealed that it conducted a survey due to several complaints received in the last few weeks about hotels and travel aggregator platforms not passing on the GST rate reduction benefits, even as the hotel industry strives to seek changes in the rules.