The Federation of Hotel & Restaurant Associations of India (FHRAI), the apex body representing the country's hospitality industry, has appealed to the GST Council to reconsider its recent changes to hotel taxation. The association has warned that the withdrawal of ITC could have a severe impact on the financial sustainability of the sector, particularly for budget and mid-scale hotels.
Earlier this month, the GST Council reduced the tax rate on hotel rooms priced below Rs 7,500 per night from 12% to 5% but simultaneously removed ITC on such tariffs. While the decision was presented as consumer-friendly, FHRAI cautioned that it undermines the principle of seamless credit under GST and will disproportionately affect hotels catering to domestic travellers.
Rising Costs Despite Lower GST
FHRAI highlighted that under the earlier regime, hotels levied 12% GST with ITC benefits. With the new 5% rate and no ITC, establishments are now left to absorb unrecoverable GST, typically 18% on rentals, outsourced manpower, utilities, maintenance and capital expenditure.
"For smaller and mid-segment hotels, this translates into huge cost overruns," FHRAI said in a statement. "A refurbishment project worth Rs 1 crore will now attract an unrecoverable GST burden of Rs 18 lakh, straining liquidity and long-term financial stability."
FHRAI President warned that this move could weaken India's competitiveness in the global hospitality market. "The withdrawal of ITC disrupts financial sustainability, especially for small and mid-scale hotels that form the backbone of Indian tourism. Without ITC, operating costs escalate sharply, deterring reinvestment and weakening India's global competitiveness. We urge the GST Council to reconsider this approach," he said.
Other Concerns: F&B Linkage and Compliance Burdens
The association also flagged long-standing anomalies such as the requirement to link Food & Beverage (F&B) services with room tariffs, calling it an unnecessary compliance hurdle that leads to revenue leakages. FHRAI has demanded that F&B be delinked from room tariffs to simplify taxation and ensure transparency.
Uncertainty also looms over transition provisions, including treatment of accumulated credits and room tariff fluctuations around the Rs 7,500 threshold, which the body warned could lead to disputes and operational disruptions.
Industry's Key Demands
FHRAI has placed several key recommendations before the government:
- Restore ITC even at the reduced 5% rate, or allow at least 75% partial ITC.
- Delink F&B services from room tariffs to eliminate anomalies.
- Recognise hotel rooms as "plant and machinery" for ITC eligibility on renovations.
- Regularise past GST disputes arising from ambiguities.
- Raise the GST threshold on tariffs from Rs 7,500 to Rs 12,500 to reflect inflation and exchange rate shifts since 2017.
Sector's Role in Vision 2047
FHRAI underlined the critical role of the hospitality industry in achieving India's Vision 2047 and the government's goal of Viksit Bharat. The sector is a major driver of employment, infrastructure growth, cultural promotion and foreign exchange earnings.
"While the reduced GST rate appears consumer-centric, it neglects long-term industry sustainability. Without ITC, the sector faces inflated costs, reduced reinvestment and weakened competitiveness," FHRAI cautioned.
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