GST on Resorts and Their Services – Complete Guide on Rates, ITC, Mixed Room Tariff & Construction-Phase GST
GST on Resorts in India – Room Tariff, ITC, Mixed Supply & Construction Credit Guide
Comprehensive guide on GST applicable to resorts including room tariff slabs, food, banquet & spa services, ITC eligibility, Rule 42 in mixed room tariff cases, GST on initial construction of resort and ITC utilisation after completion.
📌 Introduction
GST applicability on resorts is far more complex than ordinary service businesses.
A resort typically involves:
Multiple GST rates (5% & 18%)
Bundled and composite supplies
Mixed eligibility of Input Tax Credit (ITC)
Blocked credits during construction
High litigation exposure during GST audits
This detailed guide explains GST on resorts end-to-end, covering:
✔ GST rates on all resort services
✔ ITC eligibility and restrictions
✔ Rule 42 ITC reversal in mixed room tariff cases
✔ GST treatment during initial construction
✔ ITC utilisation after resort becomes operational
✔ Practical challenges & our professional advisory
🏨 GST on Accommodation Services (Room Tariff)
GST on room accommodation depends on the declared room tariff per night, not the discounted price.
📊 GST Rate on Resort Rooms
| Declared Room Tariff (Per Night) | GST Rate | ITC Eligibility |
|---|---|---|
| Up to ₹1,000 | Exempt | ❌ |
| ₹1,001 – ₹7,500 | 5% | ❌ |
| Above ₹7,500 | 18% | ✅ |
📌 Important:
If a resort charges 5% GST, it cannot claim ITC on inputs and input services used for such rooms.
🍽 GST on Restaurant & Food Services in Resorts
📊 GST Treatment on Food & Beverage Services
| Nature of Restaurant Service | GST Rate | ITC |
|---|---|---|
| Resort restaurant (room ≤ ₹7,500) | 5% | ❌ |
| Resort restaurant (room > ₹7,500) | 18% | ✅ |
| Standalone restaurant | 5% | ❌ |
| Outdoor catering | 18% | ✅ |
🎉 GST on Banquet, Marriage & Event Services
Resorts often supply multiple services together, making GST classification critical.
📊 GST on Banquet & Event Packages
| Type of Supply | GST Rate | ITC |
|---|---|---|
| Banquet hall rental | 18% | ✅ |
| Catering service | 18% | ✅ |
| Composite supply (catering principal) | 5% | ❌ |
| Composite supply (venue principal) | 18% | ✅ |
📌 Contract & invoice wording decides GST rate – a major litigation area.
💆 GST on Other Resort Services
| Service | GST Rate | ITC |
|---|---|---|
| Spa / wellness | 18% | ✅ |
| Gym / recreation | 18% | ✅ |
| Laundry | 18% | ✅ |
| Sightseeing / tour packages | 5% | ❌ |
| Transport services | 5% / 18% | Depends |
🔑 Input Tax Credit (ITC) – Overall Framework
| Output Supply | ITC Eligibility |
|---|---|
| Services taxed @ 5% | ❌ Blocked |
| Services taxed @ 18% | ✅ Allowed |
| Common inputs/services | 🔄 Proportionate reversal |
⚖️ ITC in Case of Mixed Room Tariff (5% & 18%)
Most resorts have both budget and luxury rooms, creating mixed GST supplies.
🔍 Applicable Law
ITC reversal is governed by Rule 42 of CGST Rules.
🧾 Step-Wise ITC Classification
1️⃣ Exclusive ITC – Fully Allowed
| Expense Used Only for 18% Rooms |
|---|
| Luxury furniture |
| Premium amenities |
| Dedicated housekeeping staff |
2️⃣ Exclusive ITC – Fully Blocked
| Expense Used Only for 5% Rooms |
|---|
| Budget room supplies |
| Staff serving only 5% rooms |
3️⃣ Common ITC – To Be Apportioned
| Common Expenses |
|---|
| Electricity |
| Water |
| Security |
| Front office |
| Administration |
| Maintenance |
📐 Rule 42 – Practical Illustration
Monthly Turnover
| Particulars | Amount |
|---|---|
| 5% room turnover | ₹40,00,000 |
| 18% room turnover | ₹60,00,000 |
| Total Turnover | ₹1,00,00,000 |
ITC Details
| ITC Type | Amount |
|---|---|
| Exclusive ITC (18%) | ₹2,00,000 |
| Exclusive ITC (5%) | ₹1,00,000 |
| Common ITC | ₹3,00,000 |
📊 Rule 42 Calculation
Ineligible ITC = Common ITC × (5% Turnover ÷ Total Turnover)
✅ Final ITC Claimable
| Particulars | Amount |
|---|---|
| Exclusive ITC (18%) | ₹2,00,000 |
| Common ITC Allowed | ₹1,80,000 |
| Total ITC Claimable | ₹3,80,000 |
₹1,20,000 must be reversed in GSTR-3B.
🏗️ GST on Initial Construction of Resort
Typical Construction-Phase Expenses
| Expense | GST Rate |
|---|---|
| Civil construction | 18% |
| Architect services | 18% |
| Interior design | 18% |
| Electrical & plumbing | 18% |
| Lift installation | 18% |
❌ ITC on Construction – Section 17(5) Blocked Credit
Relevant Legal Provisions
Section 17(5)(c) – Works contract for construction of immovable property
Section 17(5)(d) – Goods/services used for construction on own account
📌 Construction includes:
New construction, reconstruction, renovation, additions & alterations capitalised in books.
🏢 Items Treated as Immovable Property
| Asset | ITC |
|---|---|
| Resort building | ❌ |
| Guest rooms | ❌ |
| Banquet halls | ❌ |
| Restaurants | ❌ |
⚖️ Key Judicial Position
Courts have consistently held that:
Resort/hotel buildings are immovable property
ITC on construction remains blocked
Business use does not override Section 17(5)
🟢 ITC Allowed During Construction (Exceptions)
| Item | ITC Status |
|---|---|
| Furniture & fittings | ✅ |
| Beds, wardrobes | ✅ |
| Kitchen equipment | ✅ |
| Laundry machines | ✅ |
| DG sets | ✅ |
| Solar panels | ✅ |
📌 Accounting treatment is decisive – these must be capitalised as plant & machinery, not building.
🏁 ITC Utilisation After Completion of Resort
Output Supply vs ITC Utilisation
| Output Supply | ITC Usable |
|---|---|
| Rooms @5% | ❌ |
| Rooms @18% | ✅ |
| Restaurant @5% | ❌ |
| Restaurant @18% | ✅ |
| Spa / banquet @18% | ✅ |
📌 If mixed supplies exist → Rule 42 applies again.
⚠️ Practical Challenges Faced by Resorts
| Issue | Audit Objection |
|---|---|
| ITC claimed on civil works | Blocked u/s 17(5) |
| No Rule 42 working | ITC reversal demand |
| Incorrect composite supply | Higher GST liability |
| No cost segregation | Full ITC denial |
| Improper asset capitalisation | Credit disallowed |
💡 Our Professional Advisory (Best Practices)
✔ During Construction
Separate building vs plant & machinery ledgers
Avoid capitalising furniture into building
Break EPC contracts wherever possible
Obtain separate invoices for movable assets
✔ After Completion
Monthly Rule 42 workings
Clear mapping of ITC to 18% supplies
Internal GST audit before department audit
Documentation-driven GST strategy
📌 Good GST structuring = lower tax cost + zero litigation
✅ Conclusion
GST on resorts is not just about charging the right rate—it is about classification, ITC discipline, and compliance strategy.
With mixed room tariffs and construction-phase restrictions, professional GST planning becomes critical to avoid heavy interest, penalties, and long-drawn litigation.
📞 Need Expert Assistance?
Our Financial Advisor specialises in:
Resort & hotel GST advisory
ITC structuring & Rule 42 compliance
GST audits & departmental notices
Construction-phase GST planning
Frequently Asked Questions (FAQs) – GST on Resorts
1. What is the GST rate on resort room accommodation in India?
GST on resort rooms depends on the declared room tariff per night. Rooms up to ₹1,000 are exempt from GST. Rooms with tariff between ₹1,001 and ₹7,500 attract 5% GST without input tax credit (ITC). Rooms with tariff above ₹7,500 attract 18% GST with ITC eligibility.
2. Is Input Tax Credit (ITC) allowed when GST is charged at 5% on rooms?
No. When a resort opts for or falls under the 5% GST rate on room accommodation, ITC on inputs and input services used for such rooms is not allowed.
3. How should ITC be claimed when a resort has both 5% and 18% room tariffs?
In case of mixed room tariffs, ITC must be claimed proportionately as per Rule 42 of the CGST Rules. ITC exclusively related to 18% rooms is allowed, ITC related to 5% rooms is blocked, and common ITC must be reversed based on the turnover ratio of taxable and ineligible supplies.
4. What is Rule 42 under GST and why is it important for resorts?
Rule 42 prescribes the method for proportionate reversal of ITC when common inputs or services are used for both eligible and ineligible supplies. For resorts with mixed room tariffs, Rule 42 compliance is mandatory to avoid GST audit objections and interest liability.
5. What is the GST rate on restaurant services provided by a resort?
Restaurant services in a resort attract 5% GST without ITC if the associated room tariff is up to ₹7,500. If the resort has rooms with tariff above ₹7,500, restaurant services attract 18% GST with ITC eligibility.
6. How is GST applied on banquet, wedding and event services in resorts?
Banquet hall rental and catering services generally attract 18% GST with ITC. However, if services are supplied as a composite supply and catering is the principal supply, GST may be charged at 5% without ITC, depending on the agreement and invoicing structure.
7. Is ITC allowed on initial construction of a resort building?
No. ITC on civil construction, architect services and works contract services used for constructing a resort building is blocked under Section 17(5)(c) and 17(5)(d) of the CGST Act, even if the resort is used for taxable business purposes.
8. Which construction-related ITC is allowed for resorts?
ITC is allowed on plant and machinery and movable assets such as furniture, beds, wardrobes, kitchen equipment, laundry machines, DG sets and solar panels, provided these are not capitalised as part of the building.
9. Can ITC blocked during construction be claimed after completion of the resort?
No. ITC blocked under Section 17(5) during the construction phase cannot be claimed later, even after the resort becomes operational.
10. What are the common GST audit issues faced by resorts and hotels?
Common GST audit issues include claiming ITC on civil construction, non-reversal of common ITC under Rule 42, incorrect GST rates on food and banquet services, improper treatment of composite supplies, and wrong capitalisation of assets.
11. How can resorts legally optimise GST and avoid disputes?
Resorts should maintain proper cost segregation, apply Rule 42 correctly, capitalise assets accurately, structure contracts carefully, and conduct internal GST audits. Professional GST advisory helps minimise tax cost and avoid departmental litigation.
