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New hotels in NCR shed stars to avail tax holiday
October, 26th 2007

'Less is more' seems to be the latest mantra as a number of upcoming hotels in the three to four star categories in Delhi NCR are applying for lower star classification even though they may qualify for higher category in order to earn more tax sops.

Rajindra Kumar, president of Hotel & Restaurant Association of Northern India (HRANI), is of the opinion that if shedding stars means good service at par with higher category hotels, then there is nothing wrong in it. "It would work in favour of the hotel industry. But we have to pause and ponder if hotels maintain the star criteria they are supposed to. If so, they should be scrapped outright from classification," he said.

According to the 2006-07 annual budget, tax concessions have been allowed to promote infrastructure facilities. A five-year income tax holiday has been declared for two, three and four star hotels as well as convention centres with a seating capacity of not less than 3,000 in NCR Delhi and in the adjacent districts of Faridabad, Gurgaon, Ghaziabad and Noida, under the condition that they be operational between April 1, 2007 and March 31, 2010.

A prominent hotel in the Gurgaon region to be operational next year plans to position itself as a four-star business hotel. Its general manager, under conditions of anonymity, revealed that the company consciously went for the classification. "We are going to provide five-star facilities with pools, conferencing facilities and fine dine restaurants with the four-star rating to qualify for the five-year income tax holiday bracket," he said.

However, Kumar added that it is vital to identify whether hotels could maintain high standards over a period of time. "Hotels tend to raise room tariffs when faced with a cost crunch," he said. The duration of return on investments in hospitality is always a debate and therefore taxes become a crucial consideration. According to Mansoor Adil, executive vice president at Sarovar Hotels & Resorts, the department of tourism is considering issues where hotels giving superior services might not be able to avail for lesser classification.

M N Javed, deputy director general (Hotels & Restaurants), ministry of tourism, who heads the hotel classification committee, reacted to such practices by saying, "It does not make economic sense for the hotel. It could be the company policy but overall, if it works out then it is certainly going to benefit the industry." He added that this practice was not illegal. Perhaps these hotels will upgrade facilities after the designated period to make themselves a five-star property.

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