Laws related to the Hotels and Hospitality Industry of India

Laws related to the Hotels and Hospitality Industry of India

Most of the businessmen have thought at least once about opening a restaurant or a hotel. Since, the entry barriers and exit barriers to the hospitality industry are so low, many small businesses start with opening a restaurant or a hotel. Though it seems to be the most sought after business in terms of entry, yet to start one involves a lot of compliances.

Though this industry provides so much employment, yet it has been burdened with too much compliance. Opening a restaurant and hotel business requires obtaining a number of registrations and licenses from multiple departments. If these clearances and permits are not obtained, it may result into so many penalties which ultimately end up closing of the entire business. Therefore, it requires a well experienced compliance team to fulfil the entire registration process to start a legally sound business in hospitality industry. 

What all is comprised in the Hotels and Hospitality industry?

A hotel can be said to be an establishment where facilities like, but not limited to, bedding, lodging, dining, hosting events, public gatherings etc. are offered for a monetary consideration to the customer.

It must be kept in mind that the hotel industry is not limited to hotels only. It also comprises of establishments such as motels, guest houses, heritage hotels, farm stays, bed and breakfast facility, stand alone restaurants etc.

Statutory authorities regulating Hotels

The Hotel and Restaurant Division of the Union Ministry of Tourism is responsible for granting approvals to the online applications made for project level approval and also for the hotels under construction.

This division is also responsible for classifying the hotels under a star rating system. Following ratings are given to the hotels under this system:

  1. One-three star ratings
  2. Four-Five star with or without alcohol
  3. Five Star Deluxe
  4. Heritage (Basic)
  5. Heritage (Classic)
  6. Heritage (Grand)
  7. Legacy (Basic)
  8. Legacy (Classic)
  9. Legacy (Grand)

The above classification is done after the inspection conducted by the Hotel and Restaurant Approval and Classification Committee (HRACC) which is set up under the Ministry of Tourism itself. Further, HRACC is responsible for the categorisation of the establishments under the heads of restaurants, tented accommodations, Time Share Resorts, Air Catering units, standalone restaurants, guest house, apartment hotels, convention centres, motels, Over The Top (OTT) Aggregators, Bed and Breakfast facilities.

Some of the other organisations that are giving their contribution for facilitating and representing the concerns of the hoteliers are Hotel Association of India, The Federation of Hotels and Restaurants Association of India and other regional offices.

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Along with the above compliances listed by the union government, the entity wishing to establish itself as part of the hospitality industry has to fulfil the other necessary requirements specified by the state specific laws.  

What are the laws that are related to the hospitality industry?

The laws relating to the Hospitality Industry can be classified into the following three broad categories:

Laws related to Construction and Commissioning of Hotels

The new and existing hotels must adhere to all the statutory regulations imposed by the state and central laws in the hotels’ commissioning, construction, and maintenance within their respective jurisdictions. All these comprise of the regulations related to the state specific land laws, their respective industrial policies and development control orders.

Mandatory Statutory Licenses for Hotels

The Hotel has to get a number of licenses under various laws. These licenses are required for the post completion, establishment of the entity in the hospitality industry. The licenses can be with regard to the lodging, eating house, liquor, entertainment etc. which the hotels need to comply with for the smooth functioning of the hotel establishment. 

Tax Laws related to the Hotel Industry

The hotel industry is subject to both the Income Tax and Goods and Services Tax. Along with the taxation aspect, certain regulatory provisions related to the aspects of employment, like Employee State Insurance Act, Apprenticeship Act, contractual relationships etc. are also applicable to the Hospitality industry.

Licenses that are required for the Hotels

Following are the licenses that are required for the hotel’s registration, commencement and operations:

  1. Building Completion Certificate (CC): This document signifies that the building has been constructed as per approved plan and set regulations by the development authority. This certificated contains all the information related to the project such as the building materials, building plan etc. This certificate is issued by the local development authority.
  2. Occupancy Certificate (OC): Under the local laws such certificate is issued by the competent local authorities certifying that the building has been constructed as per the construction laws and the building is fit enough to be occupied by people in terms of the civic infrastructure like water, electricity connection, sanitation. Without the OC, the municipal authorities will not provide the electricity, water and sanitation connection.
  3. Under Shops and Establishment Act of the concerned state: Every state has its own act and the hotels come within the scope of commercial establishments and they are required to be registered under the act which gives the proof of incorporation of the business concern.
  4. Under Water Act, Air Act with the SPCB: The State Pollution Control Board of every state mandates the hotels to get the Consent to Establish (CTE) and Consent to Operate (CTO) as per the Air Act, 1981 and Water Act, 1974[1] before the hotels starts construction activities and commence the business operations.
  5. License from the respective municipal corporations: The respective municipal corporation’s approval has to be obtained for getting the water, electricity and sanitation connections for the hotel.
  6. Employees State Insurance Act: The hotel unit has to be registered as per the ESI Act under section 1 (5) where the unit employs more than 20 or more persons.
  7. Apprenticeship Act: Any business that employs more than 30 people whether regular or contractual shall be mandated to register itself for the apprenticeship program. So any hotel which has been employing more than 30 persons is mandated to initiate apprenticeship programs failing which hefty penalties are imposed.
  8. Eating and Lodging license: The Hotel needs to obtain the eating and lodging license which is usually granted by the appointed personnel of the Police department.
  9. Eating House License: This license is required where food and drinks are offered to the public at a certain premise. Such Eating House License is usually given by the Police department and a special officer is assigned for issuing permits to the applicants.
  10. Board signage and Neon sign license: For advertisement purposes the hotels put out their signage and symbols. The concerned municipality issues the licenses to the applicant for allowing the hotels to put up their signage. 
  11. License for limited money exchange: The hotels entertaining foreign guests usually exchange foreign currency. For this purpose, they need to get a license as per RBI guidelines for limited foreign exchange but such transactions are only limited to the guests of the hotels only and no one else.
  12. Factory license for the laundry purposes: Depending on the capacity of the washing of clothes, the SPCB shall permit the washing service in the hotel.
  13. Mild liquor license: License for mild liquor such as beer and wine is usually granted by the excise department of the concerned state. This is different from the bar license for serving hard drinks, foreign liquor etc.
  14. Bar license: A bar license is required by the hotel in order to serve the drinks in its restaurants and hotel rooms. Depending on the serving of liquor the competent state authority issues the bar license to the applicant hotel.
  15. Public Performance License: This license is necessary if pre recorded music is being played at the hotel premises whether it is for concert, festivals, fetes etc. Failing to procure a PPL license may result in a non-bailable and cognisable offence.
  16. Cold storage License: A central FSSAI license shall be required for the purpose of hotels storing cold storage of food items if they store more than the prescribed quantity.
  17. FSSAI license: Depending upon the annual turnover of the hotel, the FSSAI license issues the license or registration. For the high end hotels with annual turnover exceeding 20 crores, FSSAI Central License is required.
  18. License for Chimneys under Smoke Nuisance Act: It is generally issued by the State Pollution Control Board.
  19. Permits for taxis under Motor Vehicles Act: The hotels take their guests on different locations. For this, All India Tourist permit is granted to the applicant for inter-state transportation. Other licenses include the fitness certificate, commercial vehicle driving license etc. of the vehicles and the drivers.
  20. For boilers and generators, mixers and grinders: issued by the local authorities for operating industrial boilers, mixers and grinders.
  21. NOC from Fire department: A hotel must follow all the prescribed fire safety standards, fire safety guidelines. The Fire Department then issues a NOC for the business who has carried out all the prescribed procedures.
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The hospitality industry is set to bounce back from the lows of pandemic with the tourists again flocking the hotels. Many people have actually resorted to restaurant business after losing their jobs during the lockdown. Now, that this step has been initiated, it is imperative that the business owners to fully comply with the prescribed rules and procedures that have been mandated by the regulatory bodies failing which may result in penalties by the regulatory authorities. Therefore, it is recommended that before initiating any business in the hotel industry, a complete understanding of the prescribed laws relating to it must be known by the promoters.

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