The Federation of Hotel & Restaurant Associations of India (FHRAI), at its 69th Annual General Meeting, raised strong concerns over the existing Goods and Services Tax (GST) framework that levies 5% GST on hotel room tariffs up to Rs 7500 per night without Input Tax Credit (ITC).
FHRAI President warned that the current structure is driving unrecoverable taxes into operating costs, reducing affordability for domestic travellers, and deterring investments in India's mid-market hospitality segment.
Why the 5% GST slab is a concern
Under the present GST regime, hotel rooms priced below Rs 7500 per night attract a flat 5% GST, but businesses are not allowed to claim ITC on expenses like rent, utilities, outsourced services, and capital expenditure. This makes the 5% tax a non-creditable cost, pushing up operating expenses and squeezing already thin margins for budget and mid-market hotels.
Impact on India's tourism ecosystem
FHRAI highlighted that nearly 90% of India's hotels fall under the sub-Rs 7,500 category. These establishments form the backbone of India’s tourism infrastructure, particularly in Tier-II and Tier-III cities, where affordability and investment flows are crucial for growth. The association, which represents over 100,000 hotels and 500,000 restaurants, emphasized that the ITC restriction disproportionately hurts smaller properties and stifles expansion in the sector.
The association also underlined the broader economic importance of the hospitality industry, which supports nearly 60 million jobs directly and indirectly. Independent reports from the World Travel & Tourism Council (WTTC) and government sources confirm that the sector has rebounded strongly post-pandemic, with domestic and international travel witnessing significant recovery.
Industry appeal
Calling the current GST policy "counterproductive," FHRAI urged the GST Council to revisit the slab and allow ITC for hotels under the Rs 7500 threshold. The industry believes such a reform will encourage new investments, ease financial strain on operators, and improve affordability for travellers, thereby boosting India's tourism growth story.
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