Change in capital gains, tax cuts may help hotels

NEW DELHI: Hoteliers are largely muted in their reaction to the Budget, though they see benefits from measures such as changes in capital gains tax rules, curbs on cash transactions and cut in tax rates for small and medium enterprises.

The usual industry requests like granting infrastructure status to hotels with a project cost upwards of Rs 25 crore from the current Rs 250 crore have not been met in the Budget unveiled on Wednesday. Industry leaders like Vikram Oberoi of The Oberoi Group said they were expecting also a reduction in corporate tax rates for large entities.

“Tax reduction for companies with a turnover of (up to) Rs 50 crore is a welcome step. But there was an expectation that corporate taxes would come down and we were hoping for corporate tax reduction for large listed companies that employ a large number of people,” said Oberoi, the hotel chain’s managing director.

Patu Keswani, chairman of Lemon Tree Hotels, said next year’s budget might have the roadmap of what finance minister Arun Jaitley has promised — a progressive drop in corporate rates.

“I think they will take one more year. And they will try and see how many people can come in the income tax net. If they get enough direct taxation, they will then play with indirect and corporate tax rates,” he added.

Measures like reduction of tax rates to 25% from the current 30% for companies with turnover of less than Rs 50 crore are expected to benefit standalone hotel owners and restaurateurs. Experts feel hoteliers stand to gain also in terms of long-term capital gains when they exit the investment — for immovable assets, the holding period to qualify for benefits under this tax rule has been cut to two years from three.

“The indexation benefit by change of base year to 1-4-2001(for calculating the cost of long-term capital asset acquired or that on improvement) would also be useful where period of holding of the hotel asset is before 2001,” said Vikas Chadha, executive director at Keys Hotels.

He expects the sector to benefit also from the Rs 3 lakh limit proposed for cash transactions as it will bring more business to the organised sector from the largely cash-based operators. “This will impact and professionalise banqueting and marriage sales markets, and make it competitive for hoteliers,” Chadha said.