FHRAI urges FM Sitharaman to restore ITC, delink F&B GST from room tariffs

Hospitality body seeks regularisation of past GST dues, restoration of input tax credit for hotels, and flexibility in F&B taxation linked to room pricing

Leading members of the Federation of Hotel and Restaurant Associations of India (FHRAI) met Finance Minister Nirmala Sitharaman on Tuesday, where the industry body sought regularisation of past goods and services tax (GST) dues arising from interpretational ambiguities since the introduction of GST in 2017. It also called for the restoration of input tax credit (ITC) for hotels and delinking of food and beverage (F&B) GST rates from room tariffs.

 

FHRAI, which represents 60,000 hotels and 500,000 restaurants in India, has raised concerns over the revised GST structure under which the tax slab for room rates up to Rs 7,500 was reduced to 5 per cent from 12 per cent, but without ITC benefits, according to its release.

 

In September, the Hotel and Restaurant Association (Western India) or HRAWI, had also urged the government to balance consumer benefit with industry sustainability, proposing a 5 per cent GST with 50 per cent ITC benefit—similar to provisions for banking institutions—or an 18 per cent GST with full ITC on two-thirds of the value for room rates below Rs 7,500.

 

The Hotel Association of India (HAI) earlier said that the removal of ITC would be detrimental for hotel companies in the mid-scale and budget segments and may act as a disincentive for investment and expansion.

 

FHRAI seeks ITC restoration and rationalisation of thresholds

 

FHRAI President Surendra Kumar Jaiswal said these reforms would not only simplify compliance but also generate higher revenues for the government and strengthen the hospitality industry.

 

According to a study by the FHRAI Centre of Excellence for Research in Tourism and Hospitality (CERTH), mid-scale hotels—currently constrained by the Rs 7,500 threshold—would gain flexibility to raise tariffs during high-demand periods, potentially increasing annual GST collections by over Rs 4,074 crore.

 

“FHRAI recommended restoring ITC even at the 5 per cent rate, recognising hotel rooms as ‘plant and machinery’ for ITC eligibility, and revising the Rs 7,500 threshold to Rs 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 stated in its release.

 

The association added that without ITC benefits, hotels and restaurants face higher operational costs due to unrecoverable input taxes on rent, maintenance, and supplies, ultimately threatening profitability and employment stability.

 

Hospitality body calls for flexibility in restaurant GST rates

 

FHRAI further proposed that all hotel-based restaurants should have the flexibility to choose between 18 per cent GST with ITC or 5 per cent without ITC, irrespective of room tariffs. It explained that linking restaurant tax rates with accommodation pricing distorts the market, discourages tariff adjustments based on seasonal demand, and limits revenue potential for both the government and the industry.

 

Industry seeks regularisation of past GST disputes

 

For pending GST demands, the association has requested the Finance Ministry “to use provisions of Section 11A of the CGST Act, 2017, introduced through the Finance (No. 2) Act, 2024, to regularise past disputes.”

 

It added that these demand notices issued to hotels stemmed from “interpretational ambiguity.”

 

“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 an ‘as is’ basis, and a clarification should be issued for notices where no services were rendered or payment was received,” the release stated.