FHRAI urges GST council to restore input tax credit, flags structural concerns in hospitality sector

The Federation of Hotel & Restaurant Associations of India (FHRAI), the apex body of the country’s hospitality industry, has urged the GST Council to reconsider its latest move on hotel taxation, warning that the withdrawal of input tax credit (ITC) will severely hurt the sector’s financial health.

Earlier this month, the GST Council announced a rate cut on hotel rooms priced below ₹7,500 per night—from 12% to 5%—but withdrew ITC on such tariffs. While the measure is being pitched as consumer-friendly, FHRAI has cautioned that it undermines the fundamental principle of seamless credit under GST and will disproportionately impact budget and mid-scale hotels, which cater to the majority of domestic travellers.

Rising Costs Despite Lower GST

FHRAI explained that under the earlier structure, hotels charged 12% GST with ITC benefits. Now, with a 5% GST rate but no ITC, hotels will have to absorb unrecoverable GST—typically 18%—on rentals, outsourced manpower, maintenance, utilities, and capital expenditure.

"For smaller and mid-segment hotels, this translates into huge cost overruns," FHRAI noted. "A refurbishment project worth ₹1 crore will now attract an unrecoverable GST burden of ₹18 lakh, straining liquidity and long-term financial stability."

FHRAI President K. Syama Raju warned that the move threatens to erode the sector’s competitiveness.

"The withdrawal of ITC disrupts financial sustainability, especially for small and mid-scale hotels that form the backbone of Indian tourism. Without ITC, operating costs escalate sharply, deterring reinvestment and weakening India’s global competitiveness. We urge the GST Council to reconsider this approach," he said.

F&B Linkage, Compliance Hurdles

Beyond ITC, FHRAI flagged other persistent anomalies, including the requirement to link Food & Beverage (F&B) services with room tariffs. The association said this practice creates unnecessary compliance burdens and revenue leakages, calling for the delinking of F&B from room tariffs to simplify taxation and ensure transparency.

It also highlighted the lack of clarity on transition provisions, such as the treatment of accumulated credits and tariff fluctuations around the ₹7,500 threshold, which could expose the sector to disputes and operational uncertainty.

Industry’s Key Demands

FHRAI has placed several demands before the government:

• Restore ITC even at the reduced rate, or at least allow partial (75%) ITC.


• Delink F&B services from room tariffs to avoid anomalies.


• Recognise hotel rooms as "Plant & Machinery" for ITC eligibility on renovations and refurbishments.


• Regularise past GST dues where disputes arose from ambiguities in provisions.


• Raise the 18% GST threshold on tariffs from ₹7,500 to ₹12,500 to adjust for inflation and exchange rate changes since 2017.

Sector’s Role in Vision 2047

FHRAI underscored that the hospitality sector is integral to India’s Vision 2047 and the goal of achieving Viksit Bharat. The industry is a key driver of employment, infrastructure, cultural promotion, and foreign exchange earnings.

"While the new GST structure appears consumer-focused, it neglects industry sustainability. Without ITC, the sector faces inflated costs, reduced reinvestment, and weakened competitiveness," the association cautioned.

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