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September 24, 2023

HAI Submits Pre-Budget Recommendations for FY 2022-23 on Direct Taxes Custom Excise and Key Policy Developments

Hospitality sector is a key pillar of domestic & international tourism. is the second largest contributor to the national GDP and employment growth after IT sector. The ongoing pandemic has dealt a severe blow to the industry. As per National Statistical Office, India’s GDP for Q1 of 20-21 contracted by 23.9%, the hotel sector experienced shrinkage of 47%. GDP Contraction for Q2 was 7.5 percent, & hotel industry’s shrinkage 15.6%. RBI and other governmental agencies have also recognized hotels as one of the most stressed sector. As per a report by Hotelivate, a hotel consulting firm, fiscal 2021 reported the Nationwide average occupancy of 33.8%, a drop of 48%. Nationwide Average Daily Rate (ADR) of Rs. 4013, that implies a drop of 34% from Rs. 6061 in the previous year. The RevPar of Rs. 1358 was also seen adding to a drop of 66% from Rs. 3964 in fiscal 2020.

It is understood that about 40 percent of hotels in India are on the brink of permanent closure. Almost 70% of the direct jobs in the hotel sector are at risk. The very survival of the sector is under serious threat. “Liquidity” has been identified as a key factor for the sector’s survival.

Government’s support is crucial in speeding up return to normalcy of the hospitality industry at a fast pace. This can be achieved through:

• Policy Interventions including moratorium
• Rationalization of taxes and tax rates
• Easy compliances & ease of doing business

It is against this backdrop that Hotel Association of India (HAI), the apex body of the Indian Hospitality Industry humbly submitted its suggestions for the consideration by the Government in Union Budget of 2022-23. The delegation included Ms. Charulata Sukhija, Deputy Secretary General, HAI; Mr. R Shankar, Head- Corporate Affairs, EIH Ltd. (The Oberoi Group of Hotels) & Member, HAI Executive Committee; Mr. Mohit Gupta, Vice President (Finance), IHCL (Taj Group of Hotels) and Mr. Milind Wadekar, Chief Finance Officer, Chalet Hotels Ltd. Here below are the key Pre-Budget recommendations:


a) Higher depreciation rate to Hotel Buildings from 10% to 35%
Capital Expenditure in Plant and Machinery is allowed at 15% + 20% (additional depreciation). In comparison Hotels Building which comprises of 70% of project cost only gets deprecation @ 10%. Therefore, it is suggested that higher rate of depreciation should be extended to Hotel Buildings.

b) Section 37: Tax Treatment of Corporate Social Responsibility (CSR) Expenditure
It is recommended that the Explanation 2 to Section 37 be omitted, and a deduction of CSR expenses incurred by the taxpayers pursuant to provisions of the Companies Act be allowed under Section 37 in computing business income. There should be no restriction for claiming benefit u/s 80G where the contribution is to 80G registered entities. Further, it is recommended that appropriate clarifications be issued as a part of “statute” instead of having interpretation based on the press releases. This will also help in resolving various issues / confusions concerning employee taxation to whom the financial support is provided by the company.

c) Leave Travel Allowance (LTA) Modification of rule
Government should consider modifying the rules and allow citizens to avail LTA benefit for hotel stays too for a period of two years.

d) Section 72- Setoff of Business losses
It is recommended that business losses be allowed to be carried forward for up to 12 years instead of eight financial years.


a) Bring petroleum products and alcohol under GST
Remove petroleum products and alcohol from excise and bring them under the GST net.

b) Increase SEIS rate of rewards
The current rate of rewards available to hotels is 5%. It should be increased to 10% for the next three to four years at least.


a) Infrastructure Status
Hotels to be accorded Infrastructure Industry Status. The tourism sector suffers from a gap in terms of world-class infrastructure development in the country’s tourism destinations. The gap can be bridged by encouraging investments in hotel sector by giving infrastructure status for all hotel investments. It is recommended to declare hotels of above INR 25 Crs. Capex (excluding land) as infrastructure.

b) Financial Assistance: One-time financial assistance, Waiver of property tax, deferment of GST
It is recommended to have a uniform policy across states to provide financial assistance / subsidies in the form of waiver of property tax, deferment of GST to hotels to overcome the pandemic related challenges.

c) FOREIGN POLICY – Services Export Incentive Scheme – SEIS 2019-20 & Beyond
SEIS scheme benefit on foreign exchange earnings is at the rate of 5% of Net Value of Foreign Exchange, valid till March 2019. For 2019/20 the benefit has been restricted to 3% with a cap of Rs. 5 Crores per Hotel Company. Govt. should restore Hotel wise SEIS at 5% without legal entity wise cap of 5 Crores for 2019/20. Benefit of SEIS to be increased to 10% & extended till 2025.

d) Faster resolution of NCLT matters
It is recommended to give guidance for the faster resolution of the NCLT matter. Due to the prolonged pandemic impact, the hotel industry has incurred significant losses. As a result, many of the hotels are unable to service its debt obligations, manage to pay its operational costs etc. The current NCLT process takes long for financial restructuring of loans and induction of new investors in
sick hotels

e) Subsidised Power Tariffs -Hotels should be charged power rates applicable to Industries

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