Hotel, train booking cancellations now attract GST

Finance ministry has said that since cancellation is related to services, cancellation charge will now attract GST. Finance Ministry’s Tax Research Unit has released 3 circulars explaining many rules, one of them is related to the cancellation charges and GST.

One of these 3 circulars explains payments levied on breach of contract including cancellation of bookings in hotels, entertainment shows and train tickets. Booking is considered a contract in which the service provider promises to offer a service. When a customer breaches the contract or cancels the booking then the service provider earns a certain amount in the form of cancellation charge. Since cancellation charge is a payment in lieu of the breach of contract, it will have GST imposed on it.

GST calculation on cancellation charges

For example, if you book a ticket for entertainment event and its cancellation charges in Rs 100, the GST will be imposed on the income of Rs 100 to the service provider. The move is set to make unplanned travelling costlier and one has to be sure before booking hotels or train tickets now.