HOTEL INN-DIANITIN PAHILWANICHARTERED ACCOUNTANTMARCH, 2013
1. Introduction _________________________ 12. Hospitality and Tourism ________________________ 23. Hotel Classification __...
P a g e | 1P. Chidambaram ended his budget speech with Saint Tiruvalluvar’s quote “Whatclearly eye discerns as right, with...
P a g e | 2International tourist arrivals grew by 4% in 2012 to reach 1.035 billion, accordingto the latest UNWTO World To...
P a g e | 3Availability of HotelRooms 2010Classified 1,28,771Unclassified 25,83,519Total 27,12,290Requirement ofHotel Room...
P a g e | 4In July, 2012, Ministry of Tourism has revised the Hotel Classification Guidelines.Hotel Project must apply for...
P a g e | 5Inclusion in Priority Sector LendingFor the purpose of Harmonising the definition of “Infrastructure Lending”, ...
P a g e | 6Indian companies in the hotel sector (with total project cost of INR 250 crore ormore), irrespective of geograp...
P a g e | 7Construction of hotels is primarily a private sector activity which is capitalintensive and has a long gestatio...
P a g e | 8INCOME TAXIncome tax is chargeable based on Residential Status and Place of accrual orreceipt of income. It als...
P a g e | 93. Investment Linked Incentive under Section 35 AD of the IncomeTaxAn investment linked deduction Under Section...
P a g e | 10Service TaxHotel AccommodationsFrom July, 2012, Accommodation Service in hotel for declared tariff of more tha...
P a g e | 11Budget AmendmentsEarlier, Service Tax does not apply to air conditioned restaurants that do not serveliquor. T...
P a g e | 12Served From India Scheme (SFIS)This scheme is great boast to Hospitality Industry in providing internationalst...
P a g e | 13Export Promotion Capital Goods (EPCG)This scheme allows import of capital goods for pre production, production...
P a g e | 14· It can also fulfilled by supply ITA-I items to DTA, provided realization is infree foreign exchange.· Export...
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This report includes various regularity compliance specifically for Hotels/Hospitality like FDI, ECB, Various Taxation matters and benefits for Hotel/Hospitality in various Taxation Laws with recent updates, Foreign Trade policy and etc

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Hotels india

  1. 1. HOTEL INN-DIANITIN PAHILWANICHARTERED ACCOUNTANTMARCH, 2013
  2. 2. 1. Introduction _________________________ 12. Hospitality and Tourism ________________________ 23. Hotel Classification ________________________ 44. Finance4.1 Inclusion in Priority Sector Lending ______________ 54.2 Delinked from Commercial Real Estate ______________ 54.3 Foreign Direct Investment _______________ 54.4 External Commercial Borrowings _______________ 55. Hospitality Development and Promotion Board __________ 76. Taxation6.1 Income Tax ________________________ 86.2 Luxury Tax ________________________ 96.3 Service Tax ________________________ 106.4 Value Added Tax ________________________ 117. Foreign Trade Policy7.1 Served from India Scheme [SFIS] _______________ 127.2 Export Promotion Capital Goods Scheme [EPCG] ________ 13TABLE OF CONTENT
  3. 3. P a g e | 1P. Chidambaram ended his budget speech with Saint Tiruvalluvar’s quote “Whatclearly eye discerns as right, with steadfast will and mind unslumbering, thatshould man fulfill”. The mool mantra stated in the budget “Higher growth leadingto inclusive and sustainable development”. This year’s budget is more focused onreducing government deficits, subsidies and expenditureWhile India’s recent slowdown is partly rooted in external causes, domesticcauses are also important. Following the slowdown induced by global financialcrisis in 2008-09, the Indian economy responded strongly to fiscal and monetarystimulus and achieved a growth rate of 8.6 percent and 9.3 percent respectively in2009-10 and 2010-11. However, with economy exhibiting inflationary tendencies,the Reserve Bank of India started raising policy rates in March, 2010. High rates aswell as policy constraints adversely impacted investment and in the subsequenttwo year viz. 2011-12 and 2012-13, the growth rate slowed to 6.2 percent and 5.0percent respectively. Nevertheless, despite this slowdown the CompoundedAnnual Growth Rate (CAGR) for Gross Domestic Product at factor cost, over thedecade ending 2012-13 is 7.9 percent.After achieving double digit growth continuously for five years and narrowlymissing double digit in the sixth (between 2005-06 and 2010-11), the growth rateof the service sector also declined to 8.2 percent in 2011-12 and 6.6 percent in2012-13 the sector was Trade, Hotels and Restaurants, Transport andCommunication, and its growth further declined in 2012-13.Along with construction, Tourism is one of the largest sectors of the serviceindustry In India. It is capable of providing employment to a wide spectrum of jobseekers from the unskilled to the specialized, even in the remote parts of thecountry. Compared to other modern sectors, a higher proportion of tourismbenefits (jobs, petty trade opportunities) accrue to women. Hence, growth of thetourism sector is more inclusive than other sectors.INTRODUCTION
  4. 4. P a g e | 2International tourist arrivals grew by 4% in 2012 to reach 1.035 billion, accordingto the latest UNWTO World Tourism Barometer. International tourist arrivalssurpassed 1 billion for the first time in history in 2012. Emerging Economicsregained the lead with 4.1% over advanced economics 3.6%, with Asia and Pacificshowing the strongest results with increase of over 7%. Growth is expected tocontinue in 2013 only slightly below the 2012 level (3% to 4%) and in line withUNWTO long term forecast. Receipts confirm positive trend in arrivals in Indiawith receipts from international tourism increase by over 22% up to nine monthsending 2012.The number of Foreign Tourist Arrivals in India during January-July, 2012registered a growth of 6.6% over corresponding period of 2011. The number ofFTAs in India during 2010, 2011 and January-July, 2012 were 5.78 million, 6.29million and 3.76 million respectively. Some of the factors responsible forInternational Tourist Arrivals in any county are economic conditions of the sourcemarkets, connectivity, availability of reasonably priced hotel accommodation,good tourism infrastructure.12th Five Year PlanThe 12thFive Year Plan is focused on Infrastructure development by developingintegrated tourism destination and circuits, Identify and development of clusters,new tourism products, Tourism Park and rural tourism.Accommodation UnitsThe existing accommodation units may not be sufficient for the targeted numberof FTAS and DTVs in 2016. The availability of number of rooms in 2010 andrequirement of additional rooms in 2016 for the targeted growth of tourismduring the 12th Five Year Plan are given below:TOURISM AND HOSPITALITY
  5. 5. P a g e | 3Availability of HotelRooms 2010Classified 1,28,771Unclassified 25,83,519Total 27,12,290Requirement ofHotel Rooms 2016Classified 3,10,523Unclassified 46,61,807Total 49,72,330AdditionalRequirement in2016Classified 1,81,752Unclassified 20,78,288Total 22,60,040Foreign Tourist ArrivalsThe Working Group on Tourism for 12thfive year plan, set up by PlanningCommission, has recommended a target growth in domestic tourism of about12% p.a. during 12thFive Year Plan period. The Group also recommended toincrease India’s share of International Tourist arrivals to at least 1% by end of 12thplan required annual growth of about 12%.Visa on Arrival SchemeGovernment introduced “Tourist Visa-on-Arrival” Scheme for tourists from ElevenCountries. Countries include New Zealand, Japan, Indonesia, Phillippines,Singapore, Finland, Cambodia, Vietnam, Luxemberg, Myanmar and Laos. Apartfrom this, Union Minister Shri K Chiranjeevi, 1StMarch, 2013, has submitted aproposal to extend Visa on Arrivals to 16 more countries.“International tourist arrivals surpassed 1 billion for thefirst time in history in 2012”- UNWTO
  6. 6. P a g e | 4In July, 2012, Ministry of Tourism has revised the Hotel Classification Guidelines.Hotel Project must apply for Classification within 3 Months of commencingoperations. The Hotel & Restaurant Approval & Classification Committee (HRACC)under Ministry of Tourism (MoT) inspects and assesses the hotels based on thefacilities and services offered. Classification approvals will be valid for 5 years.Local approvals require:· Municipal Authority· Concerned Police Authority· Any other local authority as maybe applicable / required (viz. PollutionControl Board / Ministry of Environment & Forests etc.)· Approval / NOC from Airport Authority of India for projects located nearthe AirportHOTEL CLASSIFICATION
  7. 7. P a g e | 5Inclusion in Priority Sector LendingFor the purpose of Harmonising the definition of “Infrastructure Lending”, RBI on20thNovember, 2012 include three star or higher category classified hotelslocated outside cities with population of more than 1 million in the Definition ofInfrastructure Lending. This would enable the hotel industry to avail financialassistance more easily and relatively lower interest rate.Delinked from Commercial Real Estate (CRE)The Reserve Bank of India (RBI) has de-linked credit for hotel projects fromCommercial Real Estate (CRE), thereby enabling hotel projects to avail credit atrelaxed norms and reduced interest ratesForeign Direct InvestmentForeign Investment is freely permitted in almost all sectors. Under Foreign DirectInvestment scheme investment can be made by non-resident in India under tworoutes; 1. Automatic Route 2. Approval Route100% FDI is allowed for Hospitality sector under Automatic routeFor Foreign technology agreements, automatic approval is granted if· Up to 3% of the capital cost of the project is proposed to be paid fortechnical and consultancy· Up to 3% of the net turnover is payable for franchising andmarketing/publicity support fee, and· Up to 10% of gross operating profit is payable for management fee,including incentive fee.External Commercial Borrowing (ECB)Hospitality Sector is eligible borrower. They can avail External CommercialBorrowing (ECB) facility up to US $ 200 million during the financial year for settingup new hotel projects or for meeting foreign currency and/or rupee capitalexpenditure. The proceeds should not be used for acquisition of land.FINANCE
  8. 8. P a g e | 6Indian companies in the hotel sector (with total project cost of INR 250 crore ormore), irrespective of geographical location, avail ECB’s for repayment of RupeeLoans availed of from the domestic banking system and/or fresh rupee capitalexpenditure under automatic route subject to 75 percent of average annualexport earnings realized during the past three financial year or 50 percent of thehighest foreign exchange earnings realized in any of the immediate past threefinancial years, whichever is higher.
  9. 9. P a g e | 7Construction of hotels is primarily a private sector activity which is capitalintensive and has a long gestation period. The constraints being faced by the hotelindustry in addition to the high cost and limited availability of land is theprocurement of multiple clearances / approvals which are required from theCentral and State Government agencies for hotel projects. In some cases as manyas 65 or more clearances/approvals are required by hotel projects which varyfrom State to State. The often cumbersome process involved in obtaining multipleclearances for the hotel projects results in:· Delay in implementation of the project.· Cost escalation making the project less profitable and often unviable.· Discourage Promoters for investing in such projects.· In some instance, the project is stopped midway and restructured for someother use such as apartments etc.· Delay in implementation of the project.To address the constraints being faced by the hotel industry in obtaining multipleclearances, and to streamline the system for speedy clearances of hotel projects,the Government has approved the setting up of a ‘Hospitality Development andPromotion Board (HDPB)’ for hotel projects.The HDPB will not supersede any statutory clearances required by otherministries/agencies. However, the regular monitoring and reviewing wouldincrease their accountability. The review and monitoring would put pressure onthe concerned agencies / departments to adhere to stipulated time schedule. Theboard can at any time take up any matters of concern to the highest level of theCentral/State Governments. The clearances to be given by the concernedagencies would be based on their statutory provisions.HOSPITALITY DEVELOPMENT ANDPROMOTION BOARDNow, Indian Hotel Companies can avail ECB for repaymentof Rupee loan
  10. 10. P a g e | 8INCOME TAXIncome tax is chargeable based on Residential Status and Place of accrual orreceipt of income. It also depends on which form of business you are operating.Income Tax provisions are different for Sole proprietor, Partnership firm, LLP orCompany.As far as hotels are concern, Income Tax further depend on followingconsideration1. Ownership and Management2. Hotel Management Agreement2.1 Lease Out Hotel2.2 Operating and Management of Hotel2.3 Franchise AgreementTax implications to be considered based on business arrangement made betweenpartiesFollowing are incentive available in Income Tax especially for Hospitality Sector.1. Profit Linked Incentive under section 80ID of the Income TaxA deduction of an amount equal to 100% of Profit and Gain from for thefirst 5 consecutive years for 2, 3 and 4 star category hotels, located in allUNESCO declared World Heritage sites (Except Mumbai and Delhi) forhotels constructed and starts functioning from 1stApril, 2008 to 31stMarch, 2013.2. Incentive under section 80IE of Income Tax for undertakings inNorth-Eastern StatesA deduction of an amount equal to 100% of Profit and Gain for 10consecutive years for those who undertakes substantial expansion duringthe period of April 1, 2007 and March 31, 2017 in any of the North-EasternStates. Eligible business for this purpose are Hotels (2 Star or above),adventure and Leisure Sports. Substantial Expansion means increase ininvestment by 25 per cent of the book value.TAXATION
  11. 11. P a g e | 93. Investment Linked Incentive under Section 35 AD of the IncomeTaxAn investment linked deduction Under Section 35 AD of the Income Tax Acthas also been announced in the Union Budget 2010-2011 for establishingnew hotels of 2 star categories and above as classified by the CentralGovernment, all over India thus allowing 100% deduction in respect of thewhole or any expenditure of capital nature excluding (land, goodwill andfinancial instruments) incurred during the year for establishing new hotel.Luxury TaxLuxury Tax on Hotel Accommodation in State Matter and they have the power tolevy luxury tax on hotel tariff. Taxes range from 4% to 20% and on printed tariff toactual tariff. There is exemption limit for each state for tariff below that limit isexempt from the purview of Luxury Tax. The States/UT like Arunachal Pradesh,Andaman & Nicobar Islands, Sikkim, Orissa, J&K, Puducherry, Daman & Diu andDadra Nagar Haveli are exempt from Luxury Tax. In certain states, theseexemption limits were fixed long time back and have not revised according toinflationary trends.Illustrative rates of Luxury TaxMaharashtra GujaratOn Actual Tariff On Printed TariffUp to 750 Exempt Up to 500 Exempt750-1200 4.4% 500-2000 4%1200 and above 10% 2000 and above 6%
  12. 12. P a g e | 10Service TaxHotel AccommodationsFrom July, 2012, Accommodation Service in hotel for declared tariff of more thanRs.1000/- per day is come under a purview of service tax. Therefore if declaredtariff is less than Rs.1000/- then no service tax is levied. There is anexemption/abatement of 40% of the gross value provided Input Cenvat Credit isnot availed or service provider has not availed exemption regarding goods andmaterial sold during the course of providing taxable service (No.12/2003-ServiceTax).RestaurantsFrom July, 2012, Service provided in relation to food and beverages by airconditioning restaurants with a licence to serve alcoholic beverages are taxable inservice tax. Therefore restaurants without licence to server alcoholic beveragesand does have air-conditioning facility are exempt from the purview of servicetax. There is an exemption/abatement of 60% of the gross value provided InputCenvat Credit is not availed or service provider has not availed exemptionregarding goods and material sold during the course of providing taxable service(No.12/2003-Service Tax).
  13. 13. P a g e | 11Budget AmendmentsEarlier, Service Tax does not apply to air conditioned restaurants that do not serveliquor. The distinction is now removed and Government proposes to levy servicetax on all air conditioned restaurants. This Change has mostly cover all restaurantsspecifically in Gujarat. Only Terrace restaurant doesn’t come in purview of serviceBanquetsService of Banquet Hall provided by Hotel for any occasion along with cateringservices or any other service then Hotels can avail exemption/abatement of 30%of the gross value.Sale of Space/Time for Advertisement other than by radio/television is exemptfrom Service Tax levy as included in Negative List of Services.Bundled ServiceIn case of an event, which is a mix of various overlapping services, the serviceswhich give the most pre-dominant colour would be the category under which thesame should be taxed as per the new section 66F of Finance, 1994 as applicablefrom July, 2012. For e.f.· In case of 2N/3D package for accommodation with meals; the pre-dominant category would be accommodation even if the customer hasfood in the same restaurant like other walk-in customers. Hence, the hotelneeds to charge service tax on 60% value of the total consideration.Value Added TaxJust like Luxury Tax, Value Added Tax is also State Matter and they have thepower to levy VAT on Commodities. Different states have different approach andrate for e.g. VAT on Food Item ranges from 5% to 16.84% in various states.Similarly VAT on Liquor varies from 13% to 58%.
  14. 14. P a g e | 12Served From India Scheme (SFIS)This scheme is great boast to Hospitality Industry in providing internationalstandard quality service to foreign guest. In this scheme, the Service Providersentitled to Duty Credit Scrip equivalent to 10% of free foreign exchange earnedduring current financial year. Foreign Exchange earned through InternationalCredit Card and other instruments as permitted by RBI shall also be taken intoaccount for computation of Duty Credit Scrip.Duty Credit Scrip may be used for import of any capital goods including spares,office equipment and professional equipment, office furniture and consumables,which are otherwise freely importable and/or restricted under ITC (HS).Hotels, Clubs having residential facility of minimum 30 rooms, golf resort andstand-alone restaurant having catering facilities, Duty Credit Scrip may also beused for import of consumables including food items and alcoholic beverages.These entitlement shall be non transferable (except within group company andmanaged hotels).Duty Credit Scrip shall be valid for a period of 18 months and permitted forpayment of excise duty for procurement from domestic sourceFOREIGN TRADE POLICY
  15. 15. P a g e | 13Export Promotion Capital Goods (EPCG)This scheme allows import of capital goods for pre production, production andpost production at 3% Concessional Custom Duty, subject to an export obligationequivalent to 8 times of duty saved of capital goods under EPCG Scheme, to befulfilled in 8 years.Import of motor cars, SUV’s/all purpose vehicles shall be allowed only to hotels,travel agents, tour operator operators and companies owning/operating golfresorts subject to· Total Foreign Exchange earnings from Hotel, Travel & Tourism in currentand preceding three licensing year is Rs. 1.5 crores· Duty Saved amount on all EPCG Scheme shall not exceed 50% of averageforeign exchange earnings from Hotel, Travel & Tourism in preceding threelicensing years.· Vehicles imported shall be so registered that the vehicle is used for touristpurpose only.Export Obligation· Export obligation shall be, over and above, the average level of exportsachieved by applicant in preceding three licensing years for the same andsimilar products within the overall export obligation period. Such averagewould be the arithmetic mean of export performance in 3 years.· Up to 50% Export obligation may also be fulfilled by exports of othergood(s) manufactured or service(s) provided by the same firm/company, orgroup company/managed hotel which has EPCG Authorisation.· Shipment under Advance Authorization, DFRC, DFIA, DEPB or Drawbackscheme, or incentive schemes under Chapter 3 of FTP, would also count forfulfillment of EPCG export obligation.
  16. 16. P a g e | 14· It can also fulfilled by supply ITA-I items to DTA, provided realization is infree foreign exchange.· Export shall be physical exports. However, deemed export as specified inFTP shall also count towards export obligations.If you have any quires/clarification/feedback/anything then it will great to hearfrom you.Thank youNitin PahilwaniChartered AccountantEmail: ntpahilwani@yahoo.com / ntpahilwani@gmail.comhttp://in.linkedin.com/in/ntpahilwaniThe information contained herein is of general nature and is not intended to address thecircumstances of any particular individual or entity. Although I endeavor to provide accurateand timely information, there can be no guarantee that such information is accurate as of thedate it is received or that will continue to accurate in future. No one should act on suchinformation without appropriate professional advice after a thorough examination of theparticular situation.

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