The withdrawal of 10 per cent expenditure tax on hotels and the extension of benefits of Section 10 (23)(G) to the hotel industry (three-star hotels upwards) in the Budget means that institutions and banks do not have to pay tax on the interest income from these loans.

Bharat Hotels chairman and managing director Lalit Suri said that it is for the first time in the last 50 years that so many incentives have been accorded to the tourism industry at one go and these incentives are everything that we have been asking for during the last two-and-a-half years.

"The withdrawal of expenditure tax will have the effect of improving demand and net realisations for the hotel industry. It is a major step in rationalising taxes on the tourism sector," said L Krishna Kumar, vice president, Indian Hotels Company, which owns the Taj group of hotels.

Federation of Hotels and Restaurant Association of India secretary general Shyam Suri said that the extension of 10(23) (g) benefits will bring down the industry's cost of funds and would assure funding for the industry.

Added Krishna Kumar, "Since lenders will get tax exemption on income from lending to hotel projects, this will have the effect of lowering borrowing costs for hotel companies."

The finance minister said that the benefit of set-off of unabsorbed loss  and depreciation on amalgamation will henceforth be available to hotels under Section 72A of the Income Tax Act.

"This benefit which has been available to other industries has now been extended to hotel projects. The amendment will help hotel companies to restructure their operations and improve viability," Krishna Kumar explained. The restoration of leave travel assistance too is expected to give a boost to domestic travel.