The Federation of Hotel & Restaurant Associations of India (FHRAI) has appealed to the Union Finance Ministry to rationalise the Goods and Services Tax (GST) framework for the hospitality industry. The association has called for regularisation of past GST disputes, restoration of Input Tax Credit (ITC) benefits and delinking of food and beverage (F&B) GST rates from hotel room tariffs.
In its representation to Finance Minister Nirmala Sitharaman, FHRAI said that the sector continues to face unresolved tax disputes stemming from interpretational ambiguities that have persisted since the rollout of GST in 2017. The body urged the government to invoke Section 11A of the CGST Act, 2017 introduced through the Finance (No. 2) Act, 2024-to regularise such cases and end long-pending litigations.
Calls for Regularisation of Past GST Dues
According to FHRAI, several demand notices issued to hotels were based on differing interpretations of "declared tariff" and "transaction value." The association highlighted that many such notices were inflated due to online travel agencies' pricing models, which included commissions in displayed tariffs.
"These are not cases of tax evasion but technical inconsistencies arising during the initial years of GST implementation," the association noted, urging the government to regularise disputes on an as-is basis and issue clarifications for services not rendered or payments not received.
Hospitality Sector Seeks Restoration of ITC Benefits
The FHRAI also raised concerns over the loss of Input Tax Credit following the rate revision that reduced GST on hotel rooms priced below Rs 7,500 from 12% to 5% without ITC. While acknowledging that the move made hospitality services more affordable, the association said that mid-scale hotels now face higher operational costs due to unrecoverable input taxes on rent, maintenance, and essential supplies.
The body has urged the government to:
- Restore ITC benefits even at the 5% rate.
- Recognize hotel rooms as "plant and machinery" for ITC eligibility.
- Revise the ₹7,500 tariff threshold to Rs 12,500 to reflect inflation and currency depreciation since 2017.
- Issue transitional guidelines to ensure consistency and prevent future disputes.
Delinking F&B GST Rates from Room Tariffs
The association further requested that restaurant GST rates be decoupled from hotel room tariffs. Currently, restaurants in hotels with room tariffs above ₹7,500 are charged 18% GST with ITC, while those below the threshold are taxed at 5% without ITC.
FHRAI argued that this structure causes operational disparities, restricts tariff flexibility, and complicates compliance. It proposed allowing all hotel-based restaurants to choose between 18% GST with ITC or 5% without ITC, irrespective of room tariff levels.
A study by the FHRAI Centre of Excellence for Research in Tourism & Hospitality (CERTH) revealed that raising the tariff threshold could enable mid-segment hotels to increase tariffs during peak seasons, potentially boosting annual GST collections by over Rs 4,000 crore.
Industry Perspective
"The hospitality sector has always been a reliable partner in India's economic growth, yet GST anomalies continue to create unnecessary strain," said the President of FHRAI." Regularising past dues, restoring ITC, and delinking F&B GST from room tariffs are essential steps to create a fair, transparent and growth-oriented tax system."
FHRAI emphasised that these reforms would reduce litigation, restore business confidence, and support the government's 'Viksit Bharat @2047' vision. A simplified, consistent, and equitable GST structure, it added, would enhance India's competitiveness as a global tourism hub and promote sustainable growth in the hospitality sector.
CAclubindia
