Part 2: Hotel OTA Compliance – Visual SOP for Practical Implementation

 By CA Surekha S Ahuja

While Part 1 of this series provided a 360° legal, tax, and compliance framework for hotels handling OTA bookings, Part 2 translates that framework into a practical, operational SOP for finance, accounting, and compliance teams.

This SOP is designed to simplify the application of TDS, GST, Equalisation Levy (EL), and documentation requirements, enabling hotels to manage domestic and international bookings confidently and audit-proof.

OTA Transaction Flow – Visual Overview

Bookings via OTAs can follow several models:

• Merchant Model: OTA collects payments, remits net amount to hotel

• Agency Model: Customer pays hotel directly; OTA earns commission

• Hybrid / Partial Collection: OTA and hotel split collection responsibilities

• Referral / Network Model: OTA provides leads; hotel collects payment; OTA earns brokerage

Each model has distinct compliance implications for TDS, EL, and GST.

Visual SOP – Pencil Sketch:

This hand-drawn flowchart illustrates payment flows, tax responsibilities, and document loops for different OTA models.

Decision Matrix: TDS, EL, and GST

Scenario	OTA Model	TDS	EL	GST
Indian OTA, Merchant Model	Merchant	No TDS	No EL	GST on room + commission; ITC claimable on commission
Foreign OTA, Merchant Model	Merchant	No TDS	EL 2%	GST 18% RCM on commission; ITC claimable
Customer pays Hotel directly	Agency	194H / 195 on OTA commission	EL 2% if foreign OTA	GST 18% on commission; RCM if foreign OTA
Hybrid / Split Collection	Hybrid	TDS on OTA portion	EL 2% on foreign OTA commission	GST split per portion

This matrix simplifies decision-making for each booking scenario, ensuring correct tax treatment and audit readiness.

GST Implications (Updated Post September 2025)

Supply	GST Rate	ITC
Room tariff ≤ ₹7,500	5%	No ITC
Room tariff > ₹7,500	18%	ITC Allowed
Indian OTA Commission	18%	ITC Claimable
Foreign OTA Commission	18% RCM	ITC Claimable (subject to rules)

Key Points:

• ITC is blocked for rooms taxed at 5% without ITC

• For mixed-supply hotels, apportion ITC based on room tariffs

• Foreign OTA commissions under RCM require monthly GST payment and ITC claim tracking

Monthly Compliance Checklist

Task	Responsible	Evidence / Docs
Reconcile OTA settlements	Accounts	OTA statements
Verify TDS 194-O / 194H / 195	Accounts	Form 26AS / AIS
Deposit EL 2% (foreign OTA)	Accounts	EL challan, Form 1
Pay GST on room & commission	Accounts	GST invoices, GSTR-3B filing
Collect PE declaration	Accounts / Legal	Annual PE declaration
Maintain audit file	Accounts / Legal	Agreements, invoices, settlements, bank advices

Following this checklist ensures timely reconciliation, correct tax payments, and audit-readiness.

Documentation Tracker – Key Records

Hotels must maintain the following critical compliance documents:

• OTA agreements with model specified

• Commission invoices and settlement statements

• TDS certificates (if applicable)

• EL challans and Form 1 (foreign OTA)

• GST invoices and RCM computations

• Bank remittance proofs for cross-border payments

Proper documentation reduces audit risk, supports ITC claims, and ensures FEMA compliance.

Using the SOP

1. Identify the OTA Model for each booking

2. Follow the flowchart to map each transaction to TDS, EL, and GST obligations

3. Consult the decision matrix for precise tax treatment

4. Apply the GST table for room tariffs and OTA commissions

5. Run the monthly compliance checklist for reconciliation and tax payments

6. Maintain the documentation tracker for audit and FEMA readiness

Outcome: Hotels applying this SOP can manage all domestic and international OTA bookings effectively, ensuring compliance while reducing audit and regulatory risk.