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This article is written by Devika Raj, pursuing a Diploma in Business Laws for In-House Counsels from LawSikho. 

Introduction

If one has to single out an industry that was the worst hit by this pandemic, it has to be the hospitality industry; the hotel business. The good news is, the industry is bound to rise as quickly as it sank in deep waters and the recent rush of people after restrictions were lifted in Himachal Pradesh is proof! If we were to go by documented numbers, India Hotel Industry Report 2021 stated that in FY 2020, the RevPAR (revenue per available room) was INR 1,951.34 and is expected to reach INR 3,336.28 by FY 2025. Luckily, India is set to host the ICC Men’s World Cup in 2023 and it is expected that the hotel industry will expand at a promising rate due to the increased tourist footfall. The market is set to grow at a CAGR of 2.49%. So, if you’re planning to invest in this business or even better, start your own hotel in India. This is what you need to know. 

What does a hotel industry comprise according to the Indian law? 

The hotel industry consists of restaurants, cafes, eateries, lodging houses/guesthouses (sarai), bed & breakfast, motel, clubs, etc. Basically, an enterprise that carries out commercial hospitality operations such as allowing the guests to use or make a reservation for their premises for boarding, lodging, dining, arranging parties and weddings or public gathering, etc in return for a monetary consideration falls into the hotel business.

These are further divided into various categories based on the services provided by them such as heritage, legacy vintage hotels, standalone restaurants, motels, dhabas, bed & breakfasts/homestays, 5-star hotels (with or without alcohol), 4 -star hotels, and so on and so forth. The classifications work as a quality control measure and are done upon verification by the appropriate authority, of the quality of prescribed services provided that the hotelier is providing.

Legal route to successfully run a hotel business in India

Opening up a hotel of your own might sound very fancy but it sure isn’t a piece of cake! You have got to take innumerable permissions and licenses from the Central Government i.e., Ministry of Tourism and the State Governments, for every state has different laws governing their hotel industry drawing the power conferred to them under List 2, Schedule 7 (Entry no 34) of the Constitution of India. For starters, it is essential to know a few things before you begin to start your enterprise in the hotel industry, they are: 

  1. The appropriate authorities that are empowered to provide various permissions and licenses;
  2. Applicable laws and legislations;
  3. Steps to incorporate/register your business;
  4. Post registration compliances i.e., approval & categorisation/re-categorisation of hotel(s);
  5. Tax registration and filing;
  6. Various other permits, licenses, and compliances provided under any other law(s). 

Appropriate governing and regulating authorities

  • The Hotel and Restaurant Approval and Classification Committee (HRACC), under the Ministry of Tourism, is the primary governing authority; and
  • The Hotel Association of India is the central regulating body for hotels across the country but has various zonal/ sub-associations. They are: – 

Incorporation/registration of business

Deciding the legal structure of your enterprise

Before starting any business, it is of utmost importance that you weigh the pros and cons of various structures that are available and then choose the one that works the best for you. It is not only the first step but also the most important one because the legal structure that you choose has wide impacts on the future course of your business. Your decision could amp up or lower down the ease of doing business for you. For example, the manner in which taxes will be filed, compliances will be made, registrations will be sought, will all depend on the legal structure you choose. 

According to the needs of your organisation, you could go ahead with a range of business structures i.e., Sole Proprietorship, Partnership (General, Limited or Limited Liability Partnership), Limited Liability Company (LLC), One Person Company or a Public/Private Company. If you happen to conduct a market survey, you will find that most enterprises in the Hospitality Industry prefer LLCs because of their cost-effective liability limitation. 

Once you choose the business structure; you will have to further undertake the steps of incorporation/registration according to the specified laws. for example, if you choose to incorporate the enterprise as a company, you will have to make all registrations and compliances mentioned in the Companies Act, 2013; so, on and so forth. 

Post registration compliances i.e., approval & categorisation/ re- categorisation of hotel(s)

After you have received the Certificate of Incorporation from the appropriate authority, you may undertake a voluntary ‘Project Approval/Hotel Approval’ process on the website of the Ministry of Tourism. It will not only make your enterprise fully verified by the Government but also help you in securing the preferred classification for your hotel business as well as make you eligible for various subsidies and schemes launched by the Government of India from time to time. 

The procedure for registering your hotel has been made very easy and convenient by the Ministry by making it fully online. All you need to do is to log in to the official website of the Ministry of Tourism, Govt of India i.e., https://tourism.gov.in/ and click on the ‘Hotels & Restaurants’ tab, all the updated notifications, as well as the classified user manual, will reflect under the head ‘Important Links’ on the website which will include Government’s NIDHI (National Integrated Database of Hospitality Industry) scheme as a part of the ‘Digital India’ Initiative. You just need to follow the three easy steps mentioned in the user manual to register your hotel for approval and classification. 

  • The three steps are: registration, application, and occupancy.

Please note that to complete these steps, you will need certain documents like your Business Registration Certificate, documents projecting the status of the owner; whether a partner, sole proprietor or director; depending on the nature of your enterprise.

You will have to complete the entire procedure in 90 days. So, it is advised to get your enterprise registered and determine the roles of each person positioned in top managerial roles. 

To get your hotel categorised or un-categorised, please keep a list of services provided by you for filling up the form. A complete guide to ‘Classification of Hotels under Indian Regime’ listed on the ministry’s official website can be found here. 

Tax registration and filing

Under the old tax regime, taxation compliance was very complicated and time-consuming for hotels. Taxes were collected under various heads such as Service Tax, VAT, Luxury Tax, etc.  However, with the coming in of the new tax regime under the Goods & Service Act (GST) Act, tax filings have become simpler, thus ensuring timely compliance and obviously less hassle. 

How does GST work for hotels?

There’s an HSN or SAC code for the goods and services provided by the hotel and all the invoices are raised using these codes. In the case of invoicing goods, the use of HSN code i.e., Harmonised System Nomenclature is made. It is an internationally recognised method used for classifying goods. Usage of SAC or Services Accounting Code for the billing of the services is a migration from the old service tax regime to GST. You can access all the recent updates about Registration of GST and Rate at which it is applicable to your business as well as the GST Helpdesk, on the official website of Central Board of Indirect Taxes & Customs. 

Various other permits, licenses, and compliances provided under applicable acts and laws

There are various licenses that a hotel must acquire before it begins its operations

1. Permit to construct a building

In our country, to erect, re-erect, alter, or demolish any building; we need to seek clearance from the appropriate authority through an established procedure mentioned under the National Building Code. This code is the brainchild of the Bureau of Indian Standards (BIS) to codify the rules for the construction of buildings and the erection of structures across the country. 

Therefore, it is mandatory for you to get a ‘No objection certificate (NOC)’ against the building plan to get the construction started and also, a Building Completion Certificate after it is constructed. These certificates can be obtained by applying to the officer empowered to grant the same, under the Town & Planning Act, Municipal Act, or any Development Act; as per the State, your building will be in. 

2. Fire safety permit

A clearance certificate from the fire department is necessary before you start the operations of your hotel. This clearance certificate signifies that you have taken all preventive and precautionary measures to combat any untoward incident of fire in the building as mentioned under the fire safety and prevention laws.

3. Police license/registration

It is important that you take a license from the police before entertaining customers at your hotel because a hotel is a public place and all public places are monitored by the police to keep the law and order in check. Therefore, keeping a record of all the people visiting the premises, permission from the police for organising events on festivals, police verification of the employees, etc have to be mandatorily done. You will need certain documents like the building completion clearance certificate, fire safety permit, record of the employees, description of security measures taken by you etc for applying for a license from the police. 

4. License under Prevention of Food Adulteration Act (FSSAI License)

You simply cannot start the operations of any premises that fall under the category of Hotel Business without obtaining a license by FSSAI (Food Safety & Standards Authority of India) under the Food Safety & Standards Act,2006. You can apply for a central or state FSSAI license. In both cases, the license is valid for one year and can be applied for renewal thereon. 

The procedure is very easy and completely online. You can find the step-by-step procedure as well as the documents required to apply for an FSSAI License here. 

5. Registration under the prevalent tax regime i.e., GST, etc. 

To obtain a registration under the GST Act, you will first have to fill-up the form GST REG-01 on the GST Portal. When you visit the Portal, you must have your Business Registration Forms and PAN Card handy along with access to your email-id and phone to fill in the one-time password(s) (OTP). The documents will then be sent for verification and if they stand approved by the authorities, you will get the GST number and registration certificate. The process is completely online and hassle-free. You can also find the prevalent GST rates for your business and step-by-step help for the Registration process on the GST Portal itself. Please note the list of compliances is long and that you will also have to apply for a dozen of licenses to ensure smooth operations of your hotel. The author listed down an exhaustive list, as mentioned below: –

  • A license under Shops & Establishments Act. (According to the location of your hotel, under each State Shops & Establishments Act).
  • Registration under the Contract Labour Act.
  • Registration under the Pollution Control Act.
  • Registration under the Apprentices Act.
  • Registration under the Provident Fund Act.
  • Registration under the ESI Act.
  • Entertainment License on Festival Occasions.
  • License for Chimney under the Smoke Nuisance Act.
  • Registration under the Weights & Measures Act.
  • Factory License for Laundry.
  • Registration & Permits under the Motor Vehicle Act for Tourist Coaches/ Taxis.
  • Eating House License.
  • Municipal Beer Bar License.
  • License for storage of Diesel Oil.
  • License for storage of Kerosene & Compressed Gas (LPG).
  • Sign Board Directions, Neon Signs.
  • License to deal in Foreign Exchange under FEMA.
  • Cold Storage License, (if over 25 cubic ft.).
  • License for Boiler & Generators and Mixers and Grinders.
  • Bar License (Foreign Liquor).
  • Mild Liquor License.
  • Temporary License for Awnings & covering of Terrace during monsoon.
  • Building Completion Certificate.
  • Copyright License for Playing of Music.
  • Lodging House License.
  • Approval from the Department of Tourism, Government of India.
  • Registration from GTDC for new projects under the Package Scheme of Incentives.

Conclusion

In order to ensure that the business operations run smoothly, one must mandatorily adhere to the compliances mentioned above. These provisions, however stringent they may seem, can save you a lot of trouble in the event of any unforeseen circumstances. On the contrary. Non-compliance/ non -adherence to the provisions laid down by the law of the land can, not only be fatal to the business but also cause the hotelier to land in a great deal of trouble, costing valuable peace, time and money. 

References


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