If you’re running a homestay in India, whether it’s a spare room in your family house or a dedicated property you rent out on platforms like Airbnb and Booking.com, understanding your tax obligations is essential. Many first-time hosts assume that homestay income is somehow informal or exempt from tax, but in reality, the government treats it as taxable business income. That means you need to stay organised, keep good records, and comply with several regulations, from GST registration to TDS deductions and expense documentation. Failing to do this not only invites penalties but can also complicate your finances later when you need to prove your earnings for loans or property transactions.
The first thing to clarify is that any rental income you earn from hosting guests is subject to income tax. Under the Income Tax Act, this can fall under “Income from House Property” or “Profits and Gains from Business or Profession,” depending on how you operate. If you’re simply renting out a property without offering additional services like meals or housekeeping, it is usually treated as house property income. However, most homestay hosts provide at least basic services—daily cleaning, breakfast, amenities—which pushes the income into the business category. This distinction matters because it determines which deductions you can claim and how you file returns.
GST registration is another area that confuses many hosts. If your gross turnover from homestay bookings exceeds ₹20 lakh annually (₹10 lakh in special category states such as Himachal Pradesh and Uttarakhand), you must register for GST and charge GST on your invoices. Most booking platforms, including Airbnb, will ask for your GST number during the onboarding process. The GST rate for accommodation services typically falls in the 12% to 18% range, depending on your nightly tariff. Even if your earnings are below the threshold, some hosts voluntarily register to take input tax credits on expenses such as renovations, furniture, or utilities.
Then there is the question of TDS—tax deducted at source. If you list your property on major OTAs, they are required to deduct TDS at 1% or 5% of the payout before transferring your earnings. This deduction shows up in your Form 26AS, which you should download regularly from the Income Tax website to ensure the numbers match your actual receipts. Many hosts mistakenly think that TDS covers all their tax liability, but it’s only an advance payment. You still have to compute your total income, claim deductions, and pay any balance tax when filing your annual return.
One of the benefits of declaring your homestay income as business income is the range of expenses you can deduct to reduce your taxable profit. Common deductible expenses include maintenance and repair costs, electricity and water bills, housekeeping wages, platform commissions, marketing and photography expenses, and depreciation on furnishings or appliances. For example, if you spent ₹2 lakh on upgrading bathrooms or buying new beds, you can claim depreciation over several years, reducing your net income. The key is to maintain detailed records—receipts, invoices, and bank statements—so you have documentation if the tax authorities request proof.
When it comes time to file, most hosts will use the ITR-3 form for business income. If you prefer a simpler approach and your turnover is under ₹2 crore, you can opt for the Presumptive Taxation Scheme under Section 44ADA. Under this scheme, the government assumes your profit margin is 50% of turnover, and you pay tax on that presumed profit without itemising expenses. It’s simpler but not always beneficial if your actual expenses are higher.
Apart from income tax and GST, keep in mind any local municipal taxes or tourism levies that your state or city imposes. In some regions, panchayats or urban local bodies require a small lodging tax per booking, which you collect from guests and remit periodically.
If all this sounds complicated, you’re not alone—many hosts feel overwhelmed at first. The best practice is to consult a chartered accountant who has experience with rental and hospitality businesses. They can help you set up GST compliance, guide you on the right classification of your income, and assist in optimising your deductions so you only pay what you legally owe.
In the long run, staying compliant not only protects you from penalties but also builds a clear financial track record. This transparency is helpful if you ever want to scale up your homestay business, apply for business loans, or sell the property. More importantly, it allows you to focus on what you do best—creating memorable guest experiences—without worrying that an unexpected tax notice will spoil your hard-earned success.
Ready to make the most of your hosting journey? Partner with Homeyhuts to simplify property management and maximize your rental potential. Our platform offers cutting-edge solutions to help you attract more guests and achieve greater success.
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