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Key Points

The FHRAI is urging the GST Council to reverse its decision to withdraw Input Tax Credit for hotel rooms priced below Rs 7,500. They explain that while the new 5% rate appears consumer-friendly, it actually creates significant financial pressure on small and mid-sized hotels. The change means hotels cannot recover the 18% GST they pay on essential expenses like maintenance, utilities, and refurbishments. This additional tax burden will reduce competitiveness and hinder India's growth as a global tourism destination.

Key Points: FHRAI Urges GST Council to Restore Hotel Input Tax Credit

  • Removing ITC creates 18% unrecoverable tax on hotel refurbishments and maintenance
  • Small hotels face major cost overruns affecting liquidity and reinvestment
  • FHRAI demands delinking F&B services from room tariffs for transparency
  • Association suggests raising 18% GST threshold from Rs 7500 to Rs 12500
2 min read

FHRAI urges GST Council to restore ITC, warns of rising costs for hotels

FHRAI warns GST Council that removing Input Tax Credit for hotels under Rs 7500 will increase costs, hurt competitiveness, and damage India's hospitality sector growth.

"The withdrawal of ITC will hurt the financial health of small and mid-scale hotels, which serve most travellers - FHRAI President K. Syama Raju"

New Delhi, Sep 15

The Federation of Hotel and Restaurant Associations of India (FHRAI) on Monday urged the GST Council to reconsider its decision to withdraw Input Tax Credit (ITC) while reducing GST on hotel rooms priced below Rs 7,500.

FHRAI said that while the new rate of 5 per cent may look consumer-friendly, denying ITC will put heavy financial pressure on small and mid-segment hotels, which form the backbone of India’s hospitality sector.

According to FHRAI, hotels that earlier paid 12 per cent GST with ITC benefits will now charge 5 per cent without ITC.

This change means that hotels cannot recover the 18 per cent GST they pay on rentals, outsourced manpower, utilities, maintenance, and refurbishments.

The association explained that this will lead to major cost overruns. For example, a refurbishment project worth Rs 1 crore will now attract an additional unrecoverable tax burden of Rs 18 lakh.

Such costs, FHRAI warned, will affect liquidity, reduce competitiveness, and discourage reinvestment in the sector.

The industry body also pointed out that linking Food and Beverage (F&B) services with room tariffs continues to create confusion, revenue leakages, and compliance burdens.

It has demanded that F&B be delinked from room tariffs to ensure transparency and simplify taxation.

Another key demand from FHRAI is that hotel rooms should be recognised as “Plant & Machinery” so that ITC can be claimed on renovations and refurbishments, which directly enhance revenue and tax contribution.

The association also called for clarity on transition provisions, especially on accumulated credits and tariff fluctuations around the Rs 7,500 threshold, to avoid disputes and compliance issues.

FHRAI has further suggested that the threshold for charging 18 per cent GST on hotel tariffs be raised from Rs 7,500 to Rs 12,500.

The current slab, it said, has lost value over time due to inflation and exchange rate changes, making Indian hotels less competitive compared to global standards.

“The hospitality industry supports the government’s vision of making India a global tourism hub. But the withdrawal of ITC will hurt the financial health of small and mid-scale hotels, which serve most travellers,” said FHRAI President K. Syama Raju.

- IANS

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Reader Comments

P
Priya S
As someone who runs a small hotel in Goa, I can confirm this will hit us hard. The additional 18% unrecoverable tax on renovations means we'll have to delay maintenance or increase room rates. Neither is good for tourism 😔
M
Michael C
Good move by FHRAI to speak up. The Rs 7,500 threshold is outdated due to inflation. Raising it to Rs 12,500 makes complete sense if we want to compete with international destinations. Hope GST Council listens 🤞
A
Ananya R
While I understand the industry's concerns, let's not forget that lower GST rates benefit middle-class travelers like us. Maybe there's a middle path that helps both hotels and customers? 🏨
S
Siddharth J
The F&B linkage with room tariffs has always been confusing! Delinking them would simplify compliance and reduce revenue leakage. GST Council should address this practical issue 👍
K
Karthik V
If the government wants to make India a global tourism hub, they need to support the hospitality sector properly. Denying ITC while claiming to help the industry doesn't make sense. Hope they review this policy soon!

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