The Federation of Hotel & Restaurant Associations of India (FHRAI), the apex body and collective voice of the Indian hospitality industry, welcomes the GST Council’s continued efforts to rationalize tax rates to benefit consumers, improve compliance, and support growth. While the recent decision to reduce GST on hotel rooms priced below ₹7,500 from 12% to 5% initially appears consumer-friendly, FHRAI expresses deep concern over the simultaneous withdrawal of Input Tax Credit (ITC). The denial of ITC undermines the foundational principle of GST to facilitate seamless credit flow across the value chain, creates structural imbalances within the sector, and severely impacts the cost structures of budget and mid-scale hotels which form the backbone of Indian tourism and hospitality.
For smaller and mid-segment hotels, which serve the majority of domestic travellers, the change effectively translates into a huge cost overrun. Presently, these establishments charge GST at 12% with ITC benefits, but under the new regime, they will charge 5% without ITC. This might look beneficial for consumers but in reality, hotels will have to absorb unrecoverable GST at 18% on rentals, outsourced manpower, maintenance, utilities, and capital expenditure, fundamentally altering their cost equation and eroding competitiveness. For instance, a refurbishment project worth ₹1 crore will now carry an additional unrecoverable tax burden of ₹18 lakh, raising capital and working capital needs while stressing liquidity and long-term financial stability.
FHRAI also highlights the unresolved issue of linking Food & Beverage (F&B) services with room tariffs, which continues to create anomalies, revenue leakages, and unnecessary compliance burdens. Delinking F&B from room tariffs is essential to ensure transparency and simplify taxation. Moreover, the lack of clarity on transition provisions, including treatment of accumulated credits and tariff fluctuations around the ₹7,500 threshold, risks exposing the industry to disputes, compliance complications, and operational uncertainty.
Another key demand from the industry is that hotel rooms—the core revenue-generating assets—be recognized as “Plant & Machinery” for ITC eligibility. Renovations and refurbishments directly enhance revenue generation and tax contribution, and thus should qualify for full ITC. FHRAI has also urged the government to regularize past GST dues on an “as-is basis,” given that sector-wide disputes emerged from ambiguities in GST provisions rather than tax evasion.
Additionally, FHRAI recommends raising the threshold for charging 18% GST on hotel tariffs from the current ₹7,500 to ₹12,500 to account for inflation and exchange rate shifts since 2017. The existing threshold has effectively depreciated in real terms, burdening hotels unfairly and reducing India’s competitiveness in the global hospitality market.
“The hospitality industry stands committed to supporting the government’s vision of making India a global tourism hub. However, the withdrawal of ITC while reducing GST on hotel rooms disrupts the industry’s financial sustainability, especially for small and mid-scale hotels that cater to the vast majority of travellers. Without ITC, operating costs escalate sharply, deterring reinvestment and weakening India’s global competitiveness. We urge the GST Council to reconsider this approach, restore ITC, and create a framework that is both consumer-friendly and industry-sustainable,” said Mr. K. Syama Raju, President, FHRAI.
The hospitality sector is integral to India’s Vision 2047 and the goal of achieving Viksit Bharat. Tourism and hospitality drive employment, infrastructure, cultural promotion, and foreign exchange earnings. While the new GST structure appears consumer-focused, it neglects industry sustainability, undermining the sector’s growth trajectory by inflating costs, deterring reinvestment, and weakening global competitiveness.
FHRAI strongly urges the GST Council to restore ITC even at the reduced rate, or at least allow 75% ITC benefits for hotels, delink F&B from room tariffs, clarify transition provisions, recognize hotel rooms as Plant & Machinery, regularize past dues, and raise the tariff threshold to ₹12,500. Without these measures, the financial health and growth prospects of India’s hospitality sector will be severely compromised, weakening its role in realizing the national vision of a globally competitive and inclusive economy.
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