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.
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