New Delhi
The Federation of Hotel and Restaurant Associations of India (FHRAI) has appealed to the GST Council to restore Input Tax Credit (ITC) for the hospitality sector. The body warned on Monday that withdrawing ITC, while reducing GST on hotel rooms below Rs 7,500 to 5 per cent, is pushing small and mid-segment hotels into financial stress.
Earlier, hotels paid 12 per cent GST with ITC benefits. Under the new system, they charge 5 per cent but cannot claim ITC on expenses such as rentals, outsourced manpower, utilities, or refurbishments. FHRAI said this would lead to higher costs. For example, a Rs 1 crore refurbishment project now attracts an unrecoverable tax burden of Rs 18 lakh. Such additional costs, the association warned, will affect liquidity, reduce competitiveness, and discourage reinvestment.
FHRAI also demanded that Food and Beverage (F&B) services be delinked from room tariffs to avoid confusion and compliance issues. Another request is that hotel rooms be recognised as “Plant & Machinery,” allowing ITC on renovations that directly contribute to revenue. The body further sought clarity on transition rules, especially regarding accumulated credits and tariff fluctuations near the Rs 7,500 threshold.
Additionally, FHRAI urged the Council to raise the higher GST slab threshold from Rs 7,500 to Rs 12,500. The association said inflation and exchange rate changes have eroded the value of the current slab, making Indian hotels less competitive internationally.
FHRAI President K. Syama Raju said the hospitality sector supports the government’s vision of promoting tourism, but warned that withdrawing ITC could damage the financial health of smaller hotels serving most domestic and international travellers.
