In recent years, the rise of short-term rental services such as Airbnb has transformed how people travel and discover new locations. These sites provide a diverse choice of accommodations, including individual homes and apartments and unique and quirky properties.
While they have expanded visitors’ lodging alternatives and improved their trip experiences, the increasing popularity of these platforms has substantially influenced both the traditional hospitality business and local housing markets.
Let’s look at the implications and relevance of the GST tax adjustment that will take effect on April 1st in Airbnb.
What method do Airbnb hosts use to collect and pay GST in India?
Airbnb hosts who expect their annual commercial turnover from the sale of goods and services to be at or below INR 20 lakhs (or INR 10 lakhs in particular category states identified under Article 279A(4)(g) of the Indian Constitution) are currently exempt from registering for Goods and Services Tax (GST). For these Hosts, Airbnb will send the total GST collected from visitors straight to the tax authorities.
Hosts who expect their annual commercial turnover from the sale of goods and services to exceed the GST registration threshold of INR 20 lakhs (or INR 10 lakhs in particular category states identified under Article 279A (4)(g) of the Indian Constitution) are required to register for GST and obtain a GST number. For these Hosts, it is their responsibility to pay GST on reservations (net of any tax collected at source (TCS) subtracted) to the tax authorities. In contrast, Airbnb is responsible for depositing TCS against Hosts’ GSTIN(s).
Understanding the Impact of GST on Airbnb
It is a significant turning point in India’s tax system for Airbnb rentals. Hotel chains and other lodging establishments will now be subject to the Goods and Services Tax (GST) to level the playing field for all businesses in the industry and seal revenue leakage.
This change is predicted to have various consequences:
Increased Tax Revenue:
The primary goal of this project is to increase tax revenue from the rapidly expanding short-term rental market. With millions of houses listed on platforms like Airbnb across the country, even a low tax rate can generate significant cash for the government.
Regulatory clarity:
By imposing GST on Airbnb homes, the government clarifies the tax treatment of such accommodations. This clarity benefits both hosts and visitors by increasing trust and compliance throughout the ecosystem.
Market Equity:
Traditional lodging providers, such as hotels and guesthouses, have long been subject to numerous taxes and regulations. The inclusion of Airbnb properties in the GST net creates a more level playing field, avoiding unfair competition and encouraging a fair business environment.
Consumer Awareness:
With GST being applied to Airbnb rentals, guests should expect more transparent pricing. The inclusion of taxes upfront in the booking process raises consumer knowledge and helps to avoid surprises at checkout.
What is the current tax rate?
Airbnb takes GST from visitors on behalf of Airbnb hosts who reside in India and maintain listings there at the following specified slab rates:
Accommodation Cost per Unit, per Night: Tax Rate
- Up to 7,500 INR: 12%
- 7,501 INR or more: 18%
The accommodation price per unit per night is derived by dividing the reservation’s gross booking amount by the number of nights reserved. The Government of India determines tax rates, which cannot be amended.
Airbnb collects and pays occupancy taxes in India
Guests booking Airbnb rentals in India will pay the following taxes as part of their reservation:
India Goods and Services Tax: 12-18% of the accommodation cost, including any cleaning fees. Tax rates vary according to the average nightly fee of the reservation.
Airbnb will remit the entire portion of the GST collected from the guest directly to the tax authorities for hosts with an annual turnover of INR 20 lakhs or less or INR 10 lakhs for hosts with listings in Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh, and Uttarakhand.
Hosts whose annual sales exceed the INR 20/10 lakhs levels specified above must remit the entire amount of GST collected from the guest to the tax authorities.
How does Airbnb’s occupancy of taxes work?
In many areas, Airbnb automatically collects and pays occupancy taxes on behalf of hosts. In other areas, as well as in certain mentioned jurisdictions where Airbnb does not collect all necessary occupancy taxes, hosts may be required to collect and remit them manually.
Whether or not Airbnb automatically collects occupancy taxes makes no difference to the taxes due or the total compensation you get as a Host. You will continue to receive your refund minus any applicable Airbnb service costs. Automatic collection and payment simplify tax collection for everyone.
Implementation Challenges
While the decision to tax Airbnb units under GST is a positive step, it is not without challenges:
Compliance Burden
Hosts using short-term rental sites may be required to register for GST, file taxes, and keep proper records. Ensuring widespread compliance among a diverse range of hosts presents logistical challenges for tax authorities.
Enforcement Issues
Enforcing GST compliance among hosts using digital platforms such as Airbnb brings distinct issues. Tax authorities may need to work closely with platform providers to trace and verify transactions properly.
Economic Impact
Some critics claim that taxing Airbnb rentals could limit the sharing economy’s growth by preventing people from renting out their homes and lowering travel accommodation options. Policymakers must strike a delicate balance between the need for tax income and the promotion of innovation and entrepreneurship.
Wrapping It Up
GST-registered owners should experience no change in their financial situation, but they must notify the online marketplace of their registration status. Non-registered persons will be given the flat-rate credit in cash, resulting in a net increase in revenue. This additional revenue is classified as non-taxable.
Also Read: How to Calculate GST in an Excel Sheet: Step-by-Step Guide
FAQs
What is the tax rate on Airbnb in India?
If the Indian host has not given their PAN to Airbnb, we are required to withhold a 5% tax. Please be aware that Airbnb cannot refund any money that has already been withheld and sent to tax authorities.
Is Airbnb commercial or residential in India?
If you are not eligible for a homestay license, you can still run your business by obtaining a commercial license from the Corporation for Lodge or Apartment and renting out your property through Airbnb.
Can GST be claimed on rental properties?
The taxpayer can claim a credit for the GST paid on the rent. However, ITC can only be claimed if the property is commercially zoned or used for business purposes.
How much do Airbnb owners make in India?
In the first half of 2021, more than half of all Airbnb hosts in India aged 25 to 40 earned more than Rs. 2.6 crore. On average, in a Tier-1 city, you may earn between Rs. 50,000 and Rs.
Can you claim GST on airline tickets?
Under the Goods and Services Tax framework, businesses can claim GST Input on flight tickets.
What is an input tax?
Some goods and services are offered without GST, despite the fact that GST is included in the price of the inputs required to manufacture or sell them.
Is Airbnb legal in India?
Yes, assuming the property owner has the necessary government approvals, it is legal.
Is Airbnb beneficial in India?
An Airbnb business in India can be successful, particularly in popular tourist and business locations. Success is determined by criteria such as location, property quality, pricing strategy, and guest happiness. Proper market research and effective management are critical for profitability.
Which sector does Airbnb fall under?
Airbnb Inc. (Airbnb) runs an internet platform for hospitality services. The company offers a mobile application (app) that allows customers to list, discover, and book unique accommodations throughout the globe.
Do we need a license to manage Airbnb?
Many localities require you to register, obtain permission, or obtain a license before listing your home or accepting visitors.
