The Federation of Hotel & Restaurant Associations of India (FHRAI) has submitted a comprehensive representation to Smt. Nirmala Sitharaman, Hon’ble Finance Minister, seeking a fair and growth-oriented GST structure for the sector. The submission combines three key appeals, regularisation of past GST dues arising from interpretational ambiguities since the introduction of GST in 2017, restoration of Input Tax Credit (ITC) for hotels, and delinking of Food and Beverage (F&B) GST rates from room tariffs.
Addressing the issue of pending GST demands, FHRAI requested the Finance Minister to use the provisions of Section 11A of the CGST Act, 2017, introduced through the Finance (No. 2) Act, 2024, to regularise past disputes. The association explained that demand notices being issued to hotels stemmed not from evasion but from interpretational ambiguity, such as confusion around “declared tariff” versus “transaction value” and the definition of “specified premises.” Many notices were based on inflated room rates displayed by online travel agencies that included commissions, even though hotels received lesser amounts within the lower GST category. FHRAI urged that all such cases be regularised on “as is” basis and a clarification should be issued for the notices where no services were rendered or payment was received.
Further, FHRAI raised concerns over the recent GST rate revision that lowered GST on rooms priced below ₹7,500 from 12 percent to 5 percent but withdrew ITC benefits. While acknowledging the government’s objective to enhance affordability, the Federation underlined that removing ITC undermines the principle of seamless credit flow and disproportionately affects mid-segment hotels. Without ITC, establishments face higher operational costs due to unrecoverable input taxes on rent, maintenance, and supplies, ultimately threatening profitability and employment stability.
FHRAI recommended restoring ITC even at the 5 percent rate, recognising hotel rooms as “plant and machinery” for ITC eligibility, and revising the ₹7,500 threshold to ₹12,500 in line with inflation and currency depreciation since 2017. It also called for clear transitional guidelines to ensure compliance consistency and avoid disputes.
FHRAI also highlighted that the existing GST framework, where the restaurants in hotel premises having room tariff of Rs. 7,500 and above per unit are required to charge 18% GST with full ITC benefits while in case of room tariff being less than Rs. 7,500 per unit, restaurants have to charge 5% GST without ITC, has led to operational disparities and compliance challenges. The association proposed that all hotel-based restaurants should have the flexibility to choose between 18 percent GST with ITC or 5 percent without ITC, irrespective of room tariffs. It explained that linking restaurant tax rates with accommodation pricing distorts the market, discourages tariff adjustments in line with seasonal demand, and limits revenue potential for both the government and the industry.
As per a study conducted by the FHRAI Centre of Excellence for Research in Tourism & Hospitality (CERTH), mid-scale hotels, currently constrained by the ₹7,500 threshold, would gain the freedom to raise tariffs during high-demand periods, potentially increasing annual GST collections by over ₹4,074 crore.
Surendra Kumar Jaiswal, President, FHRAI, said, “The hospitality sector has always been a reliable partner in India’s economic growth, yet GST anomalies continue to create unnecessary strain. Regularising past dues, restoring ITC benefits, and delinking F&B GST from room tariffs are essential steps to establish a fair and transparent tax system. These reforms will not only simplify compliance but also generate higher revenues for the government and strengthen the foundations of our industry.”
FHRAI concluded that implementing these measures will reduce litigation, restore business confidence, and align with the vision of Viksit Bharat @ 2047. It reiterated that a simplified, consistent, and equitable GST structure will enhance India’s competitiveness as a global tourism destination while ensuring sustainable growth for the country’s hospitality sector.
