Hotels, resorts, hostels, and recreational clubs operate in one of the most compliance-heavy sectors under GST. The line between eligible Input Tax Credit (ITC) and blocked ITC often gets blurred when it comes to building construction, architectural upgrades, furniture, or interior designing. This creates significant risks during audit and departmental scrutiny.
A structured checklist is therefore essential — both for audit readiness and for future tax planning. It helps taxpayers:
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Avoid wrongful ITC claims that may later be disallowed.
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Maximize credit by proper structuring of contracts and invoices.
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Segregate revenue vs. capital expenditure with clarity.
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Ensure consistency between GST returns, books of accounts, and Income-tax records.
The following Audit & Taxability Checklist has been curated with minute distinctions, judicial references, and practical insights to guide hotels, resorts, PGs, and hostels in safeguarding ITC claims while staying compliant.
1. Building Construction / Major Repairs
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Was the expense incurred on original construction / reconstruction / major civil work?
→ If Yes → ITC blocked u/s 17(5)(c) (unless plant & machinery).
→ If Repairs (revenue in nature) → ITC allowed (subject to capitalization test). -
If capitalized as building in books → ITC blocked.
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If capitalized as plant & machinery (lift, DG sets, AC systems, kitchen equipment, fire-fighting) → ITC allowed.
2. Architectural / Interior Designing / Upgradation Fees
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Architectural fees linked to construction of immovable property (building/rooms) → ITC blocked.
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Architectural fees for interior works, furniture design, brand revamp, ambiance improvement → ITC allowed (if not capitalized into immovable property).
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Tax planning: bifurcate contracts – separate invoices for building (blocked) vs. interiors (eligible).
3. Furniture, Fixtures & Furnishings
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Movable furniture (sofas, tables, beds, modular furniture) → ITC allowed.
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Built-in wardrobes, fixed partitions, false ceilings (immovable) → ITC blocked.
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Audit step: verify capitalization treatment in fixed asset register.
4. Repairs & Maintenance
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Routine repairs (painting, plumbing, electrical, tiling) → ITC allowed.
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Major renovation altering structure (treated as civil construction) → ITC blocked.
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Audit check: ensure repairs not wrongly clubbed under construction.
5. Hotel-Specific Areas
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Kitchen equipment, exhausts, refrigeration, cold storage → ITC allowed (plant & machinery).
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Gym, spa, swimming pool – if movable equipment → ITC allowed; if civil construction → ITC blocked.
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Banquet halls / conference rooms – ITC blocked if structural modification, allowed on movable equipment.
6. PGs / Hostels / Lodges
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If providing residential accommodation (long stay, monthly rent) → Exempt supply → No ITC.
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If providing short-term stay (<30 days) like hotel → Taxable → ITC available (same rules as hotels).
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Dual-use property → Segregation required (Rule 42 reversal).
7. ITC Reversal & Apportionment
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If partly exempt (PG/hostel + restaurant/catering) → Apply Rule 42 proportionate reversal.
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Verify reversal workings during audit.
8. Income Tax Perspective (for planning)
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Capitalized repairs → No GST ITC (blocked) but eligible for depreciation under IT Act.
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Revenue repairs → Allowed as expense under IT Act + ITC under GST.
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Architectural & design fees → If blocked in GST, claim as capital/revenue deduction under IT Act depending on treatment.
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Always align Books of Accounts, GST ITC register, and Income Tax depreciation schedules.
Tax Planning Strategies
✅ Keep separate contracts & invoices for movable vs. immovable items.
✅ Do not capitalize interiors/furniture as “building” – classify under furniture & fixtures/plant & machinery.
✅ For long-stay PGs/hostels, evaluate option to charge GST (if commercially viable) to unlock ITC.
✅ Use advance tax planning – claim blocked ITC via depreciation in Income Tax.
✅ Maintain a fixed asset ITC eligibility matrix reviewed annually.
Judicial Support:
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Safari Retreats Pvt Ltd v. Union of India (Orissa HC, 2019) – ITC on mall construction (used for letting) allowed, though stayed by SC → strong taxpayer-friendly precedent.
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Bangalore Turf Club Ltd. (Karnataka AAR) – Civil structure ITC blocked.
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Multiple AARs have clarified furniture & fixtures movable in nature → ITC allowed.
