Airbnb is an aggregator and online marketplace which enables people to list their properties, vacant rooms in home for short-term stay. Airbnb does not own any property, building etc, but merely operates as an aggregator. Airbnb is similar to Uber and Ola which are operating as aggregators in taxi rentals business.
As of now Airbnb has listings in 65000 cities spread across 191 countries. The host, that is the property owner who lists their property for rent will fix the rent to be charged. This article is about the legal implications in renting out your property in Airbnb and what should you need to know to do it legally.
Before listing your property and rent it out through Airbnb, you should know the legal requirements to carry out this business. From KYC of the guest to approval from local body, there are several legal requirements in India and those are comprehensively covered in this article.
Shop and Establishment Act:
In India, any business establishment or any commercial activity must have approval from the local body concerned. Registration and approval by the Local Body (Corporation, Municipality, Town Panchayat and Village Panchayat) under the Shops and Establishments Act is mandatory for any business establishment including renting out through Airbnb.
While planning to establish a business, you should first learn about legal requirements and tax implications. Failing to adhere to mandatory requirements will create big chaos to the business at the later stage. Prevention is better than cure!
Shop and Establishment Act is one of the very important legislations and this act is enacted by all states in India as the subject is in State List of the Schedule VII of the Constitution of India. This act is to regulate commercial and business establishments, the working conditions of employees, safety and precautionary measures, curbing of child labour, working hours of the workmen, duty of the employers etc. As the Shop and Establishment Act is very important legislations, let us discuss more about the act in detail below.
The first and foremost question is, whether renting out through Airbnb will come under the purview of Shops and Establishments Act and what are the businesses will come under the purview of this act?
All Commercial and Business Establishments including, a shop or trader’s office or banking or non-banking financial company or office of the insurance company, or an office or administrative business in where the officials are working on or primarily doing any office work, or A hotel, restaurant, boarding or eating house, a cafe or any other refreshment house or a cinema theater, drama hall or any such place including the amusement parks and other places where public amusement or entertainment takes place.
What are the regulations as stipulated by the Shops and Establishments Act?
The Shops and Establishment Act stipulates following regulations…
1) Working hours for every employee per week or per day.
2) Detailed regulations regarding rest interval for employees and workmen, spread-over, starting and closing hours for the work, holidays and closed days of the business, national, regional and religious holidays for the employees and to the business, regulations for overtime work and the compensations for the same.
3) Regulations regarding child labour, employment of young persons and working conditions for women.
4) Regulations regarding yearly leave, medical leave, casual leave, sick leave, maternity leave, etc.
5) Regulations regarding hiring and terminating the employees and workmen.
6) Regulations regarding Maintenance of statutory registers and employment records and display of public notices.
7) Rules regarding Duties and Obligations of employers as well as employees.
The Procedure to register under this Shops and Establishments Act:
Every shop/commercial business/establishment is mandatorily required to register under this Shop and Establishment Act within 30 days from the date of commencement of business/work.
Issuance of Registration Certificate under Shops and Establishments Act:
The owner of the shop or business establishment has to send to the concerened authority designated by the Local body, in most of the states he/she is called as Inspector (or Chief Inspector of Shops and Establishments or other such Inspectors designated under the Shops and Establishments Act) of the local body area concerned, an application form with stipulated fees.
The Application form should clearly mention the name of the shop or business or commercial establishment, the name of the employer and the name of the manager etc..
Complete and clear Postal address of the shop, business or establishment including PIN Code and such other required information and particulars as prescribed by the concerned authority.
The Concerned Authority, the Chief Inspector or the Inspector designated by the Local Body Authority, after verifying the application and details submitted by the applicant, will visit the place, inspect everything in person, record his observations and shall register the shop, business or commercial establishment in the Register of establishments maintained by his office and issue a Certificate of Registration to the applicant. This registration certificate must be displayed prominently in a conspicuous place of the business or the commercial establishment. There will be a validity mentioned in the certificate of registration. The applicant has to renew the certificate of registration everytime before it expires.
The Applicant or the Business Owner has to communicate within 15 days (Fifteen days) to the concerned authority or the Inspector designated by the Local Body Authority, if is there any change in the details submitted in the application form or statement or details attached. The Inspector or the concerned authority will make necessary changes in the Register of Establishments and issue a fresh certificate of registration with amended details.
Closing down the business:
The Applicant or the Business Owner has to communicate within 15 days (Fifteen days) to the concerned authority or the Inspector designated by the Local Body Authority, if there is a closure of business. The Inspector or the concerned authority will make necessary changes regarding the closure of the business or commercial establishment in the Register of Establishments and cancel the certificate of registration issued earlier.
Very Important Note:
The rules and regulations under this Shops and Establishments act will be different and vary as the act is enacted by various states based on the local requirements and circumstances. Hence I suggest the readers to go through the Shops and Establishments Act of their respective state and also to consult with the Local Body Office, that is Administrative Office or the Municipal Corporation in the respective city where you plan to start the Bed and Breakfast establishment.
NOC from Police:
NOC or License from Police department is also a mandatory requirement, if you want to run a Bed and Breakfast or Guest House. Some states will require you to have a NOC from concerned police station and in some states you should apply for a license from Police Department.
For example, in Delhi, Additional Commissioner of Police, Licensing, Delhi is the licensing authority under No. 83-182/Spl.Cell/PHQ dated 01.02.08. You can learn more about the Licensing requirements in Delhi by clicking the following link:
In Tamilnadu, the Police License for the Guest Houses etc comes under the Licensing powers of the Police Department for Public places of entertainment and usually such licenses are issued by the Additional Commission of Police under the powers delegated by the Commissioner of Police. In case of rural and other areas, the Superintendent of Police of the concerned district is the authority to issue license for such establishments.
In all such cases of establishments a fire safety certificate issued by the Fire and Rescue Services Department is also required. The Fire Safety Certificate will be provided after inspection of the premises by the concerned officials and if the fire safety measures are incorporated in the building according to the Fire Safety Rules and Regulations of the concerned state.
All buildings must have proper building permit from the Town Planning Commission under the Town Planning Act or the Municipal Corporation or Local Body under Municipal Act.
Business Owner who is renting out his property in Airbnb or similar service must declare the income from this business to the Income Tax Department, file proper Income Tax Returns and pay appropriate tax on income. Thus the revenue accrued through this business will be accounted and legal.
License from Tourism Department:
In some states, registering and getting license from the State Department of Tourism is mandatory to operate a guest house or bed and breakfast. For example, in Karnataka, it is mandatory to register and get license from Department of Tourism of Karnataka State.
The Government of India, under the Tourism Department (Incredible India Bed & Breakfast) has announced a Bed & Breakfast scheme and announced the regulations to be followed to get a license from the Ministry of Tourism. According to this, the Home Stays or Bed & Breakfasts are classified as Silver and Gold based on the facilities available in the premises. 
There is a regional classification committee appointed by the Authorities in Department of tourism and the regional classification committee will visit the establishment and after going through the services, facilities and standards, the committee will classify as either Silver or Gold category.
The Ministry of Tourism will also include the establishment in the Directory of approved Bed & Breakfasts which is widely published, so as to enable the foreign and domestic visitors to stay in safe and homely guesthouses. Often the Ministry of Tourism, Government of India will organize training programs in the hospitality industry to improve the skilled and trained manpower. Business Owners of Bed & Breakfast and employees of the Bed & Breakfast may utilize the training programs conducted by the Ministry of Tourism, Government of India, and it will be beneficial to them personally and professionally.
According to the regulations of Bed & Breakfast scheme of Ministry of Tourism, Government of India, the approval will be given only to the Bed & Breakfast establishments in which the owner is staying in the same premises with his family. If the establishment is situated in any other place and if it is not where the business owner stays along with him family ordinarily, then such establishments will not be considered under Incredible India Bed & Breakfast Scheme, Ministry of Tourism, Government of India.
There has to be at least one let-able room in the premises and the maximum number of rooms allowed under this scheme is 6 (Six). That is Six rooms and 12 beds.
The approval is for Bed & Breakfast and Breakfast has to be served to the guest. The menu, inclusions in breakfast and type of breakfast have to be mentioned earlier (in the website, Airbnb listing and other promotional materials). The charges for the Bed & Breakfast has to be displayed in a conspicuous place and the guest must be well informed about the charges in advance so as to avoid any unwanted dispute.
Once the owner of the Bed & Breakfast applies for classification under Incredible India Bed & Breakfast Scheme, the establishment of Bed & Breakfast has to be in ready to rent position and the regional classification committee may visit the establishment anytime for the inspection.
Usually the Classification under this Incredible India Bed & Breakfast scheme is valid for two years from the date of issue of classification. The Bed & Breakfast establishment must apply for renewal at least three (3) months before the expiry date of the classification issued.
The fee for classification under the Incredible India Bed & Breakfast scheme is Rs.3000 (Rupees Three Thousand Only) for the Silver Category classification and Rs. 5000 (Rupees Five Thousand Only) for Gold Category classification.
The Regional Classification Committee follows a two-step process to classify the Bed & Breakfast businesses under the Incredible India Bed & Breakfast Scheme. Every applicant under this scheme must give the details of the facilities and services offered in the format of check-list as prescribed by the Ministry of tourism. In the first stage of accessing the facilities, services and standards, the regional classification committee will access and compare the facilities and services offered with the check-list filled by the applicant, that is the business owner of the Bed & Breakfast.
Then in the second stage, the regional classification committee will access the standards of the facilities and services offered. Usually the regional classification committee gives importance to the bed and breakfast businesses which depict Indian Culture, which has Indian interiors and which serve authentic Indian cuisine.
In the Regional Classification Committee, the Regional Director of the Department of Tourism is the Chairman of the Committee. Four other persons, consisting of IATO representative in the region, TAAI representative in the region, a representative from the Indian Tourism Office in the locality and a State Tourism Department representative of the locality are the members of the Regional Classification Committee.
There is a Hotel and Restaurant Approval and Classification Committee under the Ministry of Tourism, Government of India and this committee approves the recommendations of the Regional Classification Committee.
Requirements to get approval & classification:
The rooms which are proposed to be rented out must be in very good condition to accommodate the guests, well maintained building with quality flooring like Carpet, marble flooring etc. Preference is given to the buildings in traditional style with authentic Indian architecture. The building should be located in a road with adequate width as stipulated by the local body and the state government. Usually it is at least 18 feet (width of the road) to facilitate free movement of guest vehicles and emergency vehicles. The accommodation must have enough parking to accommodate the vehicles of the guests. There should be minimum of 1 room and maximum of 6 rooms (12 beds) to get approval and classification from Ministry of Tourism. The rooms should have enough ventilation, window, enough lightings, clean and without pests. The size of the room has to be at least 120 Square feet in the plains for the Silver category classification. It has to be 200 Square Feet in the plains to get approval as Gold category. In the hilly areas, the area of the room must be at least 100 Square Feet to get approval under Silver Category and at least 120 Square feet to get approval under Gold Category. The rooms should have clean and comfortable sleeping area with good quality Indian Style Cot & Bed. Each and every room must have clean and neat western style toilets and bathrooms attached with the room and it should include high quality toiletries. The bathroom has to be at least 30 Square Feet to get classification under Silver Category, and it has to be at least 40 Square Feet to get classification under Gold Category. It is mandatory for all attached bath rooms to have western style WC with seat, lid and toilet papers. 24 hours running hot & cold water facility must be in every bath room and proper sewerage facilities has to be in place. There has to be shower and taps in all bath rooms to get approval in any of the categories. Kitchen or at least kitchenette is required to be in all Bed & Breakfast businesses. The Kitchen or Kitchenette has to be clean, neat, pest free and in good condition. There should be well maintained and clean dining area which will serve authentic Indian traditional breakfast and/or continental breakfast. There has to be cutlery and crockery of very high quality in both categories. Air Conditioner or Room -heater has to be provided based on the conditions of the area in where the bed & breakfast is located. The Bed & Breakfast establishment should provide Iron Box and Ironing board to guests who require it. In Silver Category, Internet Connection, preferably through Wi-Fi is desired, and it is mandatory under Gold Category. There has to be necessary and required number of power sockets in every room so that the guests can use their laptops and charge mobile-phones comfortably.
In Silver Category, a telephone connection in every room with extension facility is desired and telephone connection with extension is mandatory in Gold Category. Each guest room must have wardrobe with at least 4 hangers to keep the dress and other materials of the guests. All Bed & Breakfast establishments must provide Reverse Osmosis (RO) Mineral Water as complimentary service to all the guests. All required furniture, chairs, table to work or study, and other required furniture based on the locality has to be provided. All the rooms must have shelves and drawers to keep things of the guests.
Providing Washing machines and Cloth Dryers is desired in the Silver Category and it is mandatory for the Gold Category. There has to be arrangement for laundry and access to dry cleaning services in every Bed & Breakfast establishment. A refrigerator is desired in the Silver Category and it is mandatory in the Gold Category. A lobby or reception area with comfortable sitting area is desired in the Silver Category and it is mandatory for the Gold Category of the Bed & Breakfast classifications. The facilities to dispose the garbage and food waste as per the conditions and requirements of the municipal laws. The Bed & Breakfast establishment must display the contact details of the doctors from the local area. A safe area to keep important things in the room is desired in the Silver Category and it is mandatory in the Gold Category. Smoke or fire detectors are desired in both categories of the bed & breakfast establishments. Maintenance of the registers regarding the guests who check-in and check-out, passport details of the foreign guests and identity card copies (preferably AADHAR) of the domestic guests must be kept. It is mandatory for both categories. Security Guard/Watchman is desired to get approval under Silver category and it is mandatory for the Gold Category.
In Karnataka, Name Board must clearly mention the name of the Bed & Breakfast and must include “Registered under the Tourism Department of Karnataka Government” in the display board. There are similar requirements for the establishments registered under Incredible India Bed & Breakfast Scheme, Ministry of Tourism, Government of India.
If you are running a Bed & Breakfast Establishment in India, you must maintain and keep ready for inspection the following books and registers:
A Suggestion/Complaint Register, A register containing complete details of the guests, a check-in and check-out register mentioning the destination of the guest after check-out, a serially numbered bill book (triplicate), and a serially numbered payment/advance receipt book.
Almost 90% of the Bed and Breakfasts advertised through various media including Airbnb are not licensed by the authorities and to say in other words, they are all operating without following the legal requirements as mandated by the existing laws of the nation.
Ignorance of law is not a defense. Hence it is advisable to follow the legal requirements while starting any business. Especially in businesses like Bed & Breakfast where you will have to come across strange guests often and as you will have to accommodate them in your own home, it is required to follow the rules and regulations as stipulated by the Central, State Governments and Local Bodies. Abiding to the norms and regulations as prescribed by the Governments and Local Bodies will not only allow you to operate the business peacefully and will also avoid unnecessary complications.
-Written while pursuing the NUJS M.A. in Business Laws.
Works Cited – Bibliography
- Mary White: Running a Bed and Breakfast For Dummies
- Jacqueline Wilson: The Bed and Breakfast Star
- Kshitiz Sharma: Introduction to Tourism Management
- Pamela Lanier: The Complete Guide to Bed and Breakfasts, Inns, and Guesthouses International
- Kannan: Hotel Industry In India
-Written while pursuing the NUJS M.A. in Business Laws.