How To Start A Hotel In India- A Start-Up

Guide
Until COVID-19 hit the country, the hospitality industry was thriving all around the world. India
too was no exception, with rooms getting booked months in advance. It’s not just the luxury hotels
that did well; affordable boarding and lodging also garnered revenue, thanks to people taking quick
weekend getaways. 

While the current situation has hampered the growth of these businesses, it is always a rewarding
experience to be in the hotel or start a hotel for that matter in the hospitality sector.

The hotel industry accounts for a $1 billion market size as of 2019. However, due to the current
pandemic situation, the revenues have declined by 48% but the industry is likely to witness a boom
by 2021-2022 due to various factors. 

Similarly, there are few things one must understand before establishing a business and we at
VakilSearch are here to help you with a start-up guide on how to start a hotel business in India. 

1. Understanding the business models

2. Understanding the investment
3. SWOT analysis
4. Location and property registration
5. Licences and permit knowledge
6. Labour recruitment and compliances

Types of Business Models in the Hotel Industry

After a complete data analysis on the industry sector, the following business models can be listed
down based on size, location, ownership, and target market.  

Apart from the above-stated lists, another business model that can be a profitable option can be
hotel aggregators. Similarly, a hotel aggregator is a piece of technology that searches several
different hotel room suppliers for available hotel rooms and returns them in one search query.
Additionally, it powers a hotel booking engine. Further, the aggregator model refers to a business
approach utilised by various enterprises in the e-commerce space, wherein such businesses gather
information on specific goods and services from various competing sources in the market through
their online platform.

START YOUR HOTEL BUSINESS NOW

Understanding the Investment Model

A vital step in the hotel business is to understand the investment which will be required to start a
business. Moreover, there are certain factors that will determine the investment required, such as
size, type, location, nature of the business, government regulations, licenses and permits required,
etc.; based on the level of the amount which can be invested, the category of the hotel can be
decided. Further, if financial assistance is required, loans are always an option. Normally 70% will
be provided to you by banks. 

Swot Analysis of the Business

The first step will be to identify the strengths, weaknesses, opportunities, and threats. Moreover, an
example of strengths include the potential rise of tourist influx thanks to your hotel; weaknesses
include the cost of land; opportunities, like strengths, look at the number of tourists in a tourist-
heavy country like ours; while threats focus on what the competition is doing. 

Identification of the Location and Property Registration:

The important step in establishing the business is to identify the location and demand in that
particular location. Further, based on the demand, the size requirement can be ascertained and the
location of the hotels can be determined. Likewise, for example, if the intent is to open a mid-sized
or small-sized hotel with 100 or fewer rooms: 20,000 to 50,000 sq ft. can be an appropriate land
area and if the intent is to open a five-star hotel with amenities then 1,00,000 sq ft or so can be
preferred. Further, another aspect to deal with is whether the hotel has to be established on an
ownership basis or rental basis. Similarly, that is, whether the land has to be purchased (own
premises) or rented premises because this will again affect costs during the registration and due
diligence process.

Nature of Legal
Pros Cons
ownership obligations
There is no need to worry about
the rent or vacating the place. 

Further, a sublet of the place is

It is harder to relocate the Title verification
also an option for additional
business and the owner will be
Own premises revenue.
burdened with maintenance and Sale or mortgage
fixture cost deed
Moreover, Interest payment on
land is tax-deductible.

Overall control over the place

Prime property benefits with
Rented good location and high image. Annual rent with variable costs Lease deed or
premises Ability to invest in other areas and heavy increments.  rent agreement. 
than real estate.

To register your land with us please get in touch with our experts to understand the
legal obligations of the registration

List of Licenses and Permits Required

A list of licenses and registrations are necessary to obtain for beginning a hotel business in India 

NOC from Ministry of Tourism

Additionally, registration and functioning of hotels in India require permission to be obtained from
the Ministry of Tourism.

Premises/Building Permit

Further, All the hotels must get a proper building permit according to the relevant Town Planning
or Development or Municipal Act.

Fire Safety Permit

A fire safety certificate is given to those premises which have to subsume up to the mark fire
prevention and fire safety measures as per the relevant fire safety rules and regulations.

Public Performance License

This is permission or license from the copyright holder of the song or expression which is going to
be used for any event organised at your hotel. 

Eating House License

Additionally, an eating house license is an integral license for conducting business where any kind
of food or drink is supplied for consumption legally. 

Signage License

If one wants to sell your restaurant either through word of mouth, logos, posters, pictures, and
symbols, they are required to obtain a legal permit, which is the signage license. 

Police License for Hotel

Similarly, all the hotels must maintain proper data of all guests who are visiting the hotel.
Moreover, follow all the relevant rules and regulations and sustain a valid permit from the police.

Health Trade License or Trade License

A health trade license is generally for the local health department. Further, the municipal
corporation of that area issues this license. Additionally, following the equivalent hygiene and
safety regulations that are necessary for health is a prerequisite for issuing a health trade license.

Business Registration: Further, it is recommended to set up a hotel for a company or LLP.

Bar License

 A bar permit will be required from the applicable experts. Moreover, the bar permit is normally
given by divisions working under the state government. 

FSSAI Food Business License

An FSSAI nourishment business permit under the Food Safety and Standards Act is for working at
an eatery in India. Further, the FSSAI sustenance business permit typically accommodates multi-
year licenses. 

Shops & Establishments Act Registration:

A license under the Shops & Establishments Act should be obtained if the place of business is also
used for any commercial activity in direct relation to any kind of trade that is defined under the
Shops and Establishment Act of that particular state.

Certificate of Environmental Clearance

Further, the restaurant is not only responsible for ensuring the health of the customers, but they are
also legally and morally bound to ensure that its operations must not negatively harm the nature of
the mother earth. 
Pollution Certificate: Additionally, the pollution control committee of your city or region will be
responsible for providing this license or NOC to ensure that the establishment does not violate
pollution norms. 

Lift Clearance

Further, in case of installation of a lift in a multi-story restaurant, clearance from an inspector from
the electricity department as well as the Labour Commissioner will be required. Additionally, the
electrical inspector issues the clearance.

OSP Registration:

As per the New Telecom Policy (NTP) of 1999, service providers in India involved in e-commerce,
call centres are termed as ‘Other Service Providers’ (OSP). 

Information Technology Compliance:

The business and online platform need to be compliant with the Information Technology Act of
2000 and the underlying rules such as intermediary guidelines, data privacy rules, etc.

SARAI Act:

‘Sarai’ means any building used for the shelter and accommodation of travellers. The Act by such
notice requires the keeper to register the Sarai as by this Act provided.

Labour Law Compliances:

ESI Registration

ESI is the autonomous corporation functional under the Ministry of Labour and Employment,
Government of India. Similarly, registration with Employees State Insurance is necessary for
business in India which hires 10 or more employees. 

PF Registration

An Employee Provident Fund (PF) Registration requires any establishment that employs more than
20 persons in India. Further, the PF Board administers a contributory provident fund, pension
scheme, and an insurance scheme for the workforce engaged in the organised sector in India.

Taxation Compliances
Income tax registration and returns

Additionally, the income tax return is a form that is used to file the income tax with the Income Tax
Department. Further, all entities will need to file their taxes on time and avoid penalties. Moreover,
the form that contains information about income and tax payment by an assessee is the income tax
return.

GST registration and returns  

As per the GST law, every individual/company/LLP registered under the GST and the tax paid by
filing form GST returns with the administrative authorities. Additionally, as a business person/ firm,
one of your priorities will be to do a GST return filing
GST rates applicable are

Room tariff (in INR) Applicable GST

<INR 1000 NA
>= 1000 <2500 12%
>2500 <7500 18%
>7500 28%

Professional Tax Registration

Establishment Type and Services GST Rate Applicable
At establishments with a turnover of <INR 75 lakh 5% (Composition Scheme)
Moreover, non-AC restaurants not serving alcohol 12%
Additionally, non-AC restaurants serving alcohol 18%
Moreover, restaurants with ACs or central heating (whether serving
18%
or not serving alcohol)
Likewise, partly AC and partly non-AC restaurants (includes those
18%
serving and those not serving alcohol)
Further, AC restaurants inside 5-star hotels 18%

Additionally, professional tax (PT) compliances laid down by many states as being applicable to
companies making payments. Further, this is to their employees working in PT applicable states.

Insurance Guidelines
The main insurances:

 Public liability – under the Public Liability Insurance Act of 1991. This insurance covers the
amount which the insured becomes legally liable to pay as damages to third parties as a
result of accidental death, bodily injury, loss, or damage to the property belonging to a third
party
 Product liability – under this, if the product proves to be dangerous or defective and it
causes injury to a person or property, then this insurance cover is just what one needs
 Fire policy – further, this policy will indemnify you against damage to your property caused
by fire, lightning, or explosion. 
How Do I Obtain a Liquor Licence in India?
A liquor licence granted by a state’s excise department allows licenced individuals to manufacture,
transport, and sell alcoholic beverages within the boundaries of a state. Every business that sells
alcoholic beverages, from liquor stores to restaurants, must apply for a liquor licence, either online
or in person. Even the online selling of liquor in India requires a liquor licence.

According to the VII Schedule of the Constitution, the sale, distribution, and manufacturing of
liquor are under the state list. As a result, state governments have complete control over the alcohol-
related laws and guidelines that are enforced inside their various jurisdictions. As a result, different
states have different rules regarding the sale and manufacture of liquor.

The predominant laws and rules that regulate the sale and consumption of alcohol in India are as
follows:

 Article 47 of the Constitution

 Licencing Act, 2003
 Delhi Excise Act, 2009 and Excise Rules, 2010
 Punjab Excise Act,1914
 Uttar Pradesh Excise Act,1910
 Bengal Excise Act of 1909
 Goa Excise Duty Act, 1964
 Bombay Prohibition Act of 1949
 Karnataka Excise Act, 1965
 Tamil Nadu Liquor Rules, 1981

Keep in mind that engaging in a liquor business without a licence can lead to major legal troubles
and heavy fines. Hence, it is always best to stay on the right side of the law. Get in touch with our
team to know more about how to lawfully commence and operate a liquor business.

What Does the Liquor Licence Regulate?

The excise department seeks to regulate the following activities within a state while granting a
liquor licence:

 Businesses authorised to sell and market alcohol

 When and where establishments shall sell alcohol
 Quantity of alcohol that may be sold at a time
 The charge set for the purchase of alcohol
 Types of liquor that may be sold
 Who the alcohol may be sold to 
 Businesses allowed to manufacture, transport, distribute, and possess alcohol.

The Different Types of Liquor Licences Available in India

1. Beer and Wine Licence – For those establishments who wish to sell only mild liquors such
as beer and wine. Bear in mind that such businesses should not deal in hard liquor
2. Restaurant Liquor Licence – For restaurants that wish to serve alcohol. This licence
applies only to those establishments that earn less than 40% of their total income from the
sale of liquor
3. Tavern Licence – For businesses whose liquor sales make up more than half of their profits
4. Brewpub Licence – For establishments that brew their own wine and beer.
 5. Temporary Licence – To serve liquor at a party or event with less than 20 lakh people in
attendance
6. FL-4 Licence – For people who wish to serve alcohol at a private party inside a private
resort or apartment
7. L1 – Necessary for wholesale supply of Indian liquor
8. L3 – Allows hotels to serve foreign liquors to guests in their hotel rooms
9. L5 –  Allows hotels to serve liquor in bars or restaurants within hotel premises
10. L6 – Suitable for retail vendors of beers and Indian liquors
11. L19 – Allows clubs to serve foreign alcohol.

How Can People Apply for a Liquor Licence in India?

Since every state has different liquor laws, you must consult an expert before proceeding to avoid
legal hassles later. Nevertheless, here is a look at the general process involved in obtaining a liquor
licence in India.

1. First and foremost, visit the state excise department’s official website to get an idea of the
process. You can also visit their physical office to gain some insight into what is expected
2. Once you have an idea regarding the process involved, decide on what type of licence you
need
3. Next, collect the required documents to start the application process.
4. Download the application form for your desired type of licence from the state excise
department’s website
5. Duly fill the form with the required details and attach supporting documents wherever
necessary
6. Some of the details you will need to mention include details regarding your place of
business, personal information, and mention the types of liquor you wish to sell
7. Submit the filled out form to the concerned authority and pay the applicable application fee
8. The authority will then verify all the details provided. They may also visit your business
premises to check whether everything is in order. In case they find that something is amiss,
they may ask for additional supporting documents, which you must provide
9. Once the verification process is complete, they will post a notice regarding your request for
a liquor licence on your business premises. This is to notify the locals about your new
business. If they wish to raise objections, they may do so within a specified period, and you
will then have to justify why your business will not be a hindrance to them
10. If no one raises any successful objection, the authority will grant you a liquor licence, and
you may begin operations.

Cost of a Liquor Licence Within India

Since liquor laws vary from state to state, the cost of obtaining a licence also varies depending on
your place of business. Moreover, the cost of obtaining a licence also depends on the type of licence
you want and the size and nature of your business. The list below is a breakdown of the average
cost of a liquor licence in India:

1. Temporary Licence – To serve liquor at a party or event in a town with less than 20 lakh
people, you will have to pay either:
o ₹7,000 if you wish to serve liquor to less than 100 people
o ₹10,000 if you wish to serve liquor to more than 100 people
2. FL-4 Licence – Approximately ₹13,000.
3. Serving Liquor in Rooms – To serve liquor in a restaurant, you will have to pay either:
o ₹5,00,000 for serving in hotel rooms 
o ₹1,50,000 for serving in a beer shop or restaurant
4. State Liquor Licence – Anywhere between ₹5000 and ₹15,000. 
Documents Required for Obtaining a Liquor Licence
 Applicant’s identity proof and address proof 
 Address proof of the business premises
 NOC from the state fire department 
 NOC from the concerned municipal corporation
 Duly filled application form
 MoA and AoA of companies, if applicable
 Latest ITR copy
 Applicant’s passport size photograph
 Affidavit regarding lack of criminal records in the applicant’s name 
 Affidavit declaring the applicant has no pending dues in their name.
At present India is one of the top tourist hotspots of the world and one of the up and coming economies.
These factors make it one of the leading options when it comes to the hospitality business. India has great
diversity in terms of its regions and cultures and there are plenty of man-made and natural resources.

Its cities, towns and hill stations are well connected in terms of transportation options and thus attract
tourists from all over the world. This means that there are plenty of opportunities to achieve success as far
as new hotels in India are concerned.

Steps to be taken in order to start a new hotel

Deciding the type and location of hotel
As in other businesses, the first step in starting a hotel is deciding what sort of an enterprise it is going to
be. It could be a business hotel or one catering primarily to tourists. The owners also need to determine
which location will work best for their hotel.

In India, the hill stations are among the most favorite tourist destinations along with locations such as
Delhi, Mumbai, Rajasthan, Goa, and south India, especially Kerala. Mumbai is a remarkable location for any
hotel as it is a tourist hub as well as commercial center.

Logistics of the Hotel

Good logistics are an integral part of starting and operating a hotel properly. It is important that the hotel
site is near important transit points such as railway stations and airports. Close proximity to entertainment
destinations such as shopping malls and multiplexes is also desirable. If the hotel owner decides to opt for a
location outside the city, then he or she should make sure that it is properly connected to the main city.

The area required

Before opening a hotel, the owners need to determine the area they will require for setting it up properly.
Normally a facility with 70-120 rooms needs an approximate area ranging from 10 thousand to 60 thousand
square feet. The area needed is also determined by the quality of the hotel.

In case it is a 5 star hotel with 100 rooms, the owner should acquire a maximum of 100,000 square feet,
which means that every room will have an average of 220 to 280 square feet area.

Planning the hotel layout

The owners need to get professional assistance for planning the hotel’s layout. They can also consult
interior designers for getting guidance regarding the various intricate details of hotel décor and the ways of
drawing guests. They can also go for a local builder who will be capable of designing and executing the
planning layouts, interior decoration, and designs. The entrepreneurs can look up online websites and
media advertisements for getting in touch with these professionals.

Finances of the Hotel

Before starting the hotel, the owners should make sure that the financial requirements are well satisfied.
Ideally, they should be self-equipped to start the operations but otherwise, bank loans are a good option to
get things going. In India, business loans can be availed from both nationalized and private banks. Normally,
the owners have to arrange 30 percent of the necessary capital on their own while the rest can be taken
from the banks.

Market surveys for the Hotel

The owners should hire professional agencies to do a survey for finding out the business potential in a
particular area. Ideally the whole exercise should be done in a radius of 2 to 10 kms. The agents can be
asked to analyze the general market share in the specified area as well as the social lifestyle and overall
trends prevalent in the expected customer group.

They should also focus on finding out the rates of their possible competitors in the immediate area. Ideally,
the owners should look at lower rates with the same quality of services and facilities being offered by the
other hotels. They can also do this survey on their own instead of relying on agencies.

Getting licenses for the Hotel

The licenses also need to be obtained before starting a hotel. Majority of these have to be renewed on a
yearly basis and the most important among these are applicable for lodging, liquor, water and sewage, and
food. The owners also need to procure licenses from the Pollution Control Board.

Separate licenses are required if the owners are planning to have live shows and events at their premises.
They also need to get proper verification done by concerned officials regarding areas such as fire codes and
operation of elevators.

Recruitment for the Hotel

While starting the hotel, the owners should also look to recruit with an emphasis on the following
positions:

 Customer care executives

 Sweepers
 Managers
 Cleaners
 Housekeepers
 Washers
 Waiters

The owners can look up sites such as indiaedu.com for getting the latest information on the leading
management schools in India for recruiting professionals in such positions.

Most of the top level staff like the hotel managers, customer care officials, and senior chefs is trained at the
b-schools. The lower level employees such as housekeepers, waiters, and sweepers can be hired through
job placement organizations or using local media for advertisements.

Ratings and promotions of the Hotel

An important step while starting a hotel is getting is rated from the Indian Tourism Board. The ratings
normally vary within 1-, 4-, 2-, 5-, 3-, and 5 deluxe star systems. The owners should also look at every
possible way to promote their product- the promotion can be done locally, in India, and even outside the
country. Word of mouth publicity can be done as well.