Tax Holiday Urged For Hotels In India

by Lorys Charalambous, Tax-News.com, Cyprus

19 January 2009

The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has suggested an extension of five years be given to the tax holiday scheme covering all categories of the country's hotels.

ASSOCHAM's suggestions recommend paying particular attention to the introduction of tax concessions for 5-star hotels in order to boost hotel room capacity in time for the Commonwealth Games in 2010.

Such a scheme has already been implemented for the country's 2-star 3-star and 4-star hotels and convention centres in preparation for the Commonwealth Games as part of the 2007-08 Union Budget.

ASSOCHAM Secretary General D.S. Rawat went on to propose that in a bid to accelerate the pace of construction of more hotel rooms, the hotel industry needs to be declared an Infrastructure Industry under Section 80 I/A of the Income Tax Act 1961 and should be given the full benefit of concessions for infrastructure facilities already available to other sectors like airports, seaports, power projects and gas distribution networks, where investors must wait a long time to realise a return.

ASSOCHAM estimates that there are already 70 new hotel projects taking place over the next 2 years.

ASSOCHAM has also reiterated its demand for the removal of the service tax which is presently levied on the hotel industry, in light of the fact that the hotel industry is one of the prime foreign exchange earners and is recognized as a service export industry.

Also, under the existing provisions, banquet (outdoor as well as indoor) guests are charged the services tax on food and beverages plus VAT, which amounts to double taxation. ASSOCHAM recommends that only VAT be charged on food, beverages and provisions in relation to banquets.

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