Budget 2012: Hotel accommodation, eating out to become expensive with service tax hike

Foodies and foot-loose Indians have both hit a speed bump. Traveling Indians will have to shell out more when they stay in hotels. Eating out has also become more expensive with taxes now accounting for over 30% of the bill you settle at restaurants because of the hike in service tax from 10% to 12%.

It was in the last budget that hotel accommodation with a daily tariff of over Rs 1,000 and air-conditioned restaurants serving liquor came under the service tax net.

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Taposh Chakraborty, President of Alux Hotels said, "It is certainly going to be a burden on personal expenditure on eat-out and holidays, particularly for the middle class, which is one of the most powerful engines of domestic tourism growth." Domestic tourists increased 11% to touch 740 million in 2011.

Taxes would account between 30 to 36% of the food bills after the proposed hike. The tax component includes a value-added tax of 12.5% to 14%, a service tax of 12% and service charge of 8% to 10%.

Though service charge, basically a tip, is not compulsory, several restaurants have incorporated it in the bill for the services rendered.

Room rates too will increase. A five star hotel stay will cost Rs 300 more on existing tariff of about Rs 15,000 per night.

The hotel industry has a luxury tax, which depending on the various states, ranges from 5% to 12.5%. As on 31 December 2011, there were 2,895 classified hotels having with an estimated inventory of 1.29 lakh rooms in the country.