06.08.2022: GST applicable on hotel, travel bookings cancellation charges

The Tax Research Unit (TRU)  of the union finance ministry issued three circulars on Wednesday with a lot of explanations and clarifications as far as the GST levy is concerned.

While they did discuss a lot of points, one of the circulars spoke about what is the GST levy in case payments are arising out of a breach of contract and it states that one would be liable to pay GST on cancellation of hotel or travel or even entertainment event bookings.

This is only in case there is a cancellation charge in case of cancellation of service. This is because the charges are considered as costs for making sure that the service is given to the person and also the costs involved in cancellation of the supply. So, all of them together are considered the consideration for the supply that is promised.

For example, if one books a ticket in the AC first class compartment of a train, then they are liable to pay 5 percent GST. In case they go ahead and cancel that ticket, then Rs 240 fee is applicable. In that case, they will have to pay 5 percent GST on that cancellation fee of Rs 240 as well. That means, they will have to pay Rs 12 extra on the amount they are already paying. This is the case when cancellation charges are levied.

In some of the cases where a seller has taken a deposit from a buyer for a certain transaction say for a property sale, in that case, GST is not applicable because that deposit is forfeited and no GST is applicable to the buyer because here are the forfeiture is a compensation for the losses suffered and not a consideration.

Source: CNBC TV18


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