1. By central Government
(A) Loan Facility : The Tourism Finance Corporation of India provides financial assistance to the private sector for construction of hotels of Rs. 3 crore and above as well as other tourist facilities of equal costs.
(B) Interest Subsidy : 3% interest subsidy is available to hotels of one to three star category on loans sanctioned by financial institutions. 5% Interest subsidy is available on loans if tourism Inuits are constructed in Jaisalmer, Jodhppur, Bikaner and Barmer.
(C) Income tax incentives
(a) Section 80 HHD of the Income Tax Act : This is available to hotel on their foreign exchange earnings . 50% of profits derived by hotels, travel agents and tour operators in foreign exchange are exempt from income tax. The balance 50% of profits in foreign exchange is also exempt, provided it is reinvested within a period of 5 years in new hotel projects or expansion of existing unit. In an amendment of this section in the budget proposals of 1999, the balance amount can also be invested in equity shares of eligible issue of capital . This would be by a public company and the entire proceeds of issue should be utilized for new hotel projects or for facilities for growth of tourism as prescribed by the central Government.
(b) section 80Ib of the Income Tax Act : Section 80IB of Income Tax Act 1961 give income tax exemption not related to foreign exchange earnings. This is because hotels are like and infrastructure facility contributing to the economic development of an area. This section was earlier known as 81 IA and has been renamed as section 80-1A in the budget proposals of 1999. All hotels which starts operating between 1.4.1997 to 31.3.2001 will be eligible for income tax deduction as under:
Hotel location in the hilly areas, rural areas, places of pilgrimage or a specified place of tourist importance will be eligible to 50% deductions from their profits / gains.
In respect of hotels located in other places, the deduction allowed is 30% only, except in Metro cities of calcutta, Chennai, Delhi and Mumbai, Where no deductions allowed.
These benefits are only available to hotels approved by the Ministry of Tourism.
The hilly areas, rural areas and places of pilgrimage have been defined as :
Hilly Area : The term "hilly area" means any area located at a height of 1,000 meters or more above sea level.
Place of Pilgrimage : A "palace of pilgrimage" means a place where any temple, mosque, gurudwara, church or other place of public worship of renown throughout any state of States is situated.
Rural Area : It means any area other than :
1. an area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the preceding census of which relevant figures have been published before the first day of the previous year
2. an area within such distance not being more than fifteen kilometers from the local limits of any municipality or cantonment board referred to in sub-clause
(i) as the Central Government may, having regard to the stage of development of such area including the extent of, and scope for , urbanization of such area and other relevant considerations specify in this behalf by notification in the official Gazette.