ITC on Outstation Hotel Stays

Tally Solutions |Updated on: May 23, 2022

For businesses, availing accommodation in destinations outside the State where they are registered, is common. This could be for business events, meetings, seminars, employee engagement activities, functions, etc. In the previous tax regime, under Service Tax, there was no concern with regard to ITC on outstation hotel stays. As Service Tax registration was a centralised registration, businesses registered under Service Tax could claim full ITC of the Service Tax paid on the accommodation charges, irrespective of the State where the accommodation service was taken.

Example: Ramesh Solutions is an IT firm in Delhi whose employees travel to Mumbai for a meeting and take accommodation for 5 days in a hotel in Mumbai. The total accommodation charges incurred by Ramesh Solutions is Rs. 50,000 and Service Tax @ 15% amounting to Rs. 7,500. Ramesh Solutions was eligible to avail full ITC of Rs. 7,500 paid.

Under GST, registration is no longer centralised but State-wise. Many businesses would hence not be registered in States where they do not have operations. When a business avails accommodation service from a hotel, the place of supply will always be ‘the place where the service is provided’, that is, the location of the hotel. In such a case, the tax charged on supply of accommodation services will be CGST + SGST of the State where the hotel is located. If a business does not have a registration in that state, it will not be able to take input credit of the tax paid on the accommodation charges. It will become an additional cost to the business.

Example: Let us consider the above example and assume that under GST, Ramesh Solutions only has registration in Delhi. On the accommodation charges of Rs. 50,000, CGST + SGST of Maharashtra will be incurred by Ramesh Solutions @ 9% each, amounting to CGST of Rs. 4,500 and SGST of Rs. 4,500. Ramesh Solutions will not be able to claim ITC on this tax paid, as it does not have a registration in Maharashtra.

Let us consider another example.

Example: Ramesh Solutions has its Head Office in Delhi and a regional office in Maharashtra. They have taken registration under GST in both these states. Few employees of the firm travel from Delhi to Mumbai for a meeting and take accommodation for 5 days in a hotel in Mumbai. The total accommodation charges incurred by Ramesh Solutions is Rs. 50,000 and CGST + SGST of Maharashtra @ 9% each, amounting to Rs. 4,500 each is leviable. Here, if Ramesh Solutions provides its Maharashtra GSTIN to the hotel for billing and the invoice is raised to the Maharashtra GSTIN, Ramesh Solutions can avail the ITC of CGST + SGST of Rs. 4,500 each.

Hence, businesses should ensure that whenever accommodation is taken in a State where they have a registration, their GSTIN of that particular State is provided for billing.

Conclusion

Businesses need to be aware of the tax implications, in the case of accommodation being taken in a State where they do not have a registration. As they will not be able to claim input credit on outstation hotel stay, it will become an additional cost for the business. Also, businesses which have a registration in the State where they are availing accommodation, must ensure that invoices are collected in their GSTIN of that particular state. This will enable them to avail the ITC on the accommodation service.