How to Start a Small Hotel Business in India: Business Plan, License, Permits, Setup Cost, Profit, and Requirements

There is a growing demand for small hotels in India. These are usually family-owned businesses that offer simple, affordable accommodation. There are several reasons for this trend. First, the country’s population is growing rapidly, and there is increasing demand for affordable hotel accommodations. Second, hotel prices have increased dramatically recently, making small hotels attractive. Finally, many Indian people are now traveling and want to experience the local hospitality scene. 

How to Start a Small Hotel Business in India
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Small hotels can be a great way to start your own business. They don’t require a large initial investment and offer much flexibility. You can run your hotel as a sole proprietorship or as part of a franchise network. The main downside of small hotels is that they can be difficult to notice. You must ensure you target the right market segment and deliver the right product at the right price. This blog post will explain the requirements, investment, and profit margin of a small hotel business in India.

How to start a small hotel business in India

Investment needed to start a small hotel business in India

Are you questioning the cost of opening a small hotel in India? Starting a small hotel business in India can be cost-effective, but it will require some investment. Here are the costs and what you’ll need to start up: To get started, you’ll need to purchase or lease a property. A small hotel typically costs between Rs 50 lakh and Rs 1 crore, although the price will vary depending on the location and size of the hotel.

You’ll also need enough money to cover initial operating expenses, such as marketing and occupancy taxes. In terms of staffing, you’ll need at least two full-time employees, including a general manager and a head of housekeeping. Additional staff may be necessary for tourism seasons, such as Christmas or Easter.

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Hotel Reception
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The average wage for a general manager in a small hotel is Rs 25,000 per month, while the head of the housekeeping salary is Rs 20,000. In addition, you will need to make sure that your property meets certain standards. In India, hotels must have at least 16 rooms and be 100 square feet (9 square meters). You’ll also need to install air conditioning and electrical wiring, provide safe drinking water supplies, and maintain a clean property.

License/permits required for starting a small hotel business in India

Starting a small hotel business in India can be a great way to make some money and gain some experience in the industry. However, before starting any such business, it is important to be aware of the necessary licenses and permits that need to be obtained. The following are some licenses and permits typically required to start a small hotel business in India: 

  1. Hotel Management License: This license is required if you plan on running a hotel with more than 10 rooms. 
  2. Food Safety Certificate: This certificate is required if you plan to serve guests food. 
  3. Building Permit: This permit is necessary if you want to build or remodel a hotel structure. 
  4. Fire safety certificate
  5. GST number. Check with your local municipal office for required permits.

Requirements for starting a small hotel business in India

  • Location: Ideally, a small hotel business should be in a metropolitan area. However, if the business is located in a rural area, it should still have good access to major transportation hubs.
  • Possible Sources of Revenue: The most common sources of revenue for small hotel businesses in India are room rates, direct marketing, and catering services.
  • Staffing: A small hotel business in India typically needs between two and five full-time employees.
  • Operating Costs: The operating costs for a small hotel business in India are typically lower than for a larger hotel business. For example, the cost of property and equipment may be lower, as well as the cost of labor.

Small hotel business plan – how do I write a business plan for a small hotel?

To write a hotel business plan for a small hotel, you first need to understand the different components of a business plan. A business plan should include the following;

  • Business Overview 
  • Market analysis 
  • Product/service differentiation 
  • Competitive landscape 
  • Financial analysis
  • Management plan

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Once you have a good understanding of the components of a business plan, you can start writing your own. Here are some tips to help you get started: 

  1. Start with an overview of your business. What is your company’s mission? What makes your hotel unique? How will guests find and visit your property? Then, write down everything you know about your company and how it will benefit customers. 
  2. Make a market analysis. What are the current trends in the hospitality industry? What are the key challenges facing small hotels today? By understanding the challenges and opportunities in your market, you’ll be able to create a unique selling proposition (USP) that will attract guests. 
  3. Differentiate yourself from competitors. How will your guests perceive the value of staying at your hotel compared to other options? Are there any new trends in travel that you can capitalize on? Think creatively about improving your current services and making your hotel stand out from the competition. 
  4. Know thy costs. What is necessary to maintain and run your hotel successfully? What are the most important expenses associated with running a small hotel, and what can you do to reduce them?

How to start a small hotel business step-by-step 

Starting a small hotel business can be a great way to make extra money and have your own business. Here are step-by-step instructions on how to get started:

  1. Choose a location – One of the first things you need to do is decide on a location for your business. You can either start with an existing hotel or find a new location to lease or purchase. 
  2. Get the necessary permits – Once you’ve chosen a location, you’ll need to get the necessary permits from local authorities. This includes zoning approval, building permits, and fire code certification. 
  3. Market your business – Once you have all the permits, it’s time to start marketing your small hotel business. First, you’ll need to create a brochure, website, and marketing plan targeting potential customers.
  4. Get started – Once you’ve finalized your plans, it’s time to start building your small hotel business.

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Beautiful Hotel Room
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How to start a small hotel business with no money in India

  • One way is to find an existing hotel and purchase it. 
  • Another option is to find a franchise opportunity. You can also find an individual investing partner or apply for a small business loan from any bank. 
  • And finally, you can start a hotel from scratch using private funding. Whichever route you choose, be prepared for long hours and hard work. But with careful planning and some luck, starting a small hotel can be an enjoyable and lucrative experience.

Small hotel business franchise in India

If you want to get into the hotel business, franchising might be the right option. Franchising offers several benefits, such as stability and predictability in your business. Plus, it can give you access to a large pool of potential customers. However, to start franchising, you’ll need to assess your skills and qualifications. 

First, ensure you have the experience and knowledge to run a successful small hotel business. Next, create a strong business plan and marketing strategy. Finally, find a reputable franchise company to help you set up and manage your business. If you’re ready to get started with franchising, be sure to research different options available in India. Many reputable franchise companies can help you get started.

How to run a Successful hotel business in India

Running a successful hotel business in India can be a very rewarding experience, provided you do your research and put in the hard work. Here are five tips to help you get started: 

  1. Get licensed and insured; first and foremost, you’ll need to obtain a license from the government and your state’s licensing authority. Ensure your property is properly insured for fire and liability purposes. 
  2. Set your prices right while it’s important to be competitive, setting prices too high can drive away customers. Be sure to factor in taxes and other necessary fees into your pricing structure. 
  3. Build an awesome team in India that prides itself on its teams of competent staff members who can provide top-notch service to its guests. Hire people who share your vision and are committed to making your business successful. 
  4. Invest in Property and Equipment To run a successful hotel business in India, you’ll need to make significant investments. Purchase an up-to-date property that meets the standards set by local authorities, and invest in the latest equipment and technology to improve efficiency and guest service.

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Hotel Inside View
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Profit margin in the small hotel business in India

In a small hotel business in India, the profit margin can be quite high due to the low labor cost. However, several expenses also need to be considered, such as rental costs for the premises, electricity and water bills, and depreciation on fixtures and equipment. Therefore, to maximize profits, it is important to carefully plan and budget for these costs and find ways to reduce operating costs.

Taxes/GST in the small hotel business in India

In India, taxes/GST applies to all business activities, including those in the hospitality sector. The GST is a nationwide tax levied at the rate of 18%. All hotel establishments with an annual occupancy of more than five rooms are considered small businesses and, therefore, subject to GST regulations. The GST registration process for hotels is straightforward and requires only a registration form and a total annual taxable income declaration.

There is no need to submit any other documentation. However, once registered, the hotel establishment must pay quarterly taxes on its total taxable income. Therefore, it is important to keep accurate records of all transactions within the hotel premises to calculate the taxable income. Hoteliers should also be aware of other tax implications from their business operations. Your charted accountant (CA) is the right source for taking care of income tax filings, GST filings, and other trade-related filings.

Challenges/Risks involved in the small hotel business in India

In India, the small hotel business is growing quickly. There are many challenges and risks involved in operating a small hotel in this market, but with the right strategy and planning, these businesses can be successful. One of the main challenges facing small hotels in India is competition from larger chains. 

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Hotel Design
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Many of the larger chains have invested heavily in the Indian market, and they are now well-established businesses with strong networks and economies of scale. These chains can often afford better prices and more convenient amenities than smaller hotels, making it difficult for small hotels to compete. Another challenge facing small hotels in India is finding suitable locations. Many of the best locations are already occupied by large chains or other types of businesses, and it can be difficult to find a location that is both profitable and accessible.


Starting a small hotel business in India can be a rewarding experience if you have the right attitude and the necessary skills. The key to success is to be organized, efficient, and patient. There are many potential pitfalls, but with careful planning and execution, starting a small hotel business can be rewarding. We wish you good luck in your small hotel business in India.


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