The Ministry of Finance has reiterated through a fresh set of FAQs that hotels charging up to Rs 7,500 per room per day will be taxed at a mandatory 5% GST rate without ITC. The clarification settles industry queries on whether hotels could voluntarily opt for the 18% GST slab with ITC for such units.
Ministry's Stand
According to the Finance Ministry, "Suppliers of hotel accommodation service where the value of a unit of accommodation is less than or equal to Rs 7,500 per unit per day shall have to charge GST at 5% without ITC. It is a mandatory rate prescribed for such services and the option to pay GST at 18% with ITC is not available for such units."
This marks a significant change from the earlier structure, where rooms priced up to Rs 7,500 attracted 12% GST with ITC.
Industry Concerns
The clarification has reignited concerns in the hospitality sector, particularly among mid-scale and budget hotels. The Hotel Association of India (HAI) has already written to the Ministry of Tourism seeking discussions to revisit the GST treatment.
According to HAI's Secretary General, the removal of ITC could discourage investment and expansion, especially for hotel companies operating in the mid-range category. "We are gathering data to support our case on the financial impact of not including ITC. For now, hotels may have no choice but to absorb the additional costs," he said.
The Federation of Associations in Indian Tourism and Hospitality (FAITH) has also raised similar concerns. Its General Secretary noted that while the recent GST revisions may benefit customers, hotels will face rising operating costs. "Hotels are requesting the government to allow ITC on the 5% slab for tariffs up to Rs 7,500 as a special case," he added.
Impact on the Hospitality Sector
Industry stakeholders fear that the absence of ITC will increase operational costs for hotels, reduce margins and act as a disincentive for fresh investment in the sector. Analysts also caution that it could hurt the competitiveness of India's hospitality industry, particularly at a time when the tourism sector is recovering post-pandemic.
The government, however, has maintained that the simplified 5% GST slab for rooms priced up to Rs 7,500 is designed to bring greater uniformity and affordability for consumers.
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