FHRAI urges GST Reforms in Hospitality to Restore ITC, regularise Dues & Delink F&B from Room Tariff

The Federation of Hotel & Restaurant Associations of India (FHRAI) has urged the Union Finance Ministry to bring about reforms in the Goods and Services Tax (GST) framework for the hospitality industry - primarily calling for the restoration of Input Tax Credit (ITC), regularisation of past dues and delinking of Food & Beverage (F&B) GST rates from room tariffs.

A delegation from the FHRAI recently made a representation to Finance Minister Nirmala Sitharaman highlighting the many structural and operational challenges faced by the hospitality sector under the present GST regime. As per a report by Business Standard, the FHRAI, which represents over 60,000 hotels and 5 lakh restaurants across India, stated that the current tax structure has led to higher operating costs, loss of competitiveness among industry players, and a distortion of tax neutrality which is one of the founding principles of GST.

FHRAI President Pradeep Shetty stated that the withdrawal of ITC for room tariffs below ₹7,500 per night has severely impacted mid-scale and budget hotels, whose operations depend heavily on taxable inputs such as rent, utilities, maintenance and supplies. He further emphasised that the inability to claim ITC has effectively increased costs for operators, limiting reinvestment capacity and passing the burden of higher prices on to consumers.

Another key issue highlighted was the ambiguity in the notices issued by tax authorities.

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FHRAI has maintained that these issues stem from confusion over the actual definitions of terms such as “declared tariff,” “transaction value” and “specified premises.” The association has requested that demands arising from such interpretational ambiguities and calculation errors be regularised through Section 11A of the CGST Act which permits the government to retrospectively correct genuine errors and disputes that are caused by ambiguity in statutory provisions.

De-linking GST on F&B from Room Tariffs

An important request raised by the FHRAI is for a policy revision to delink the GST rate applicable to F&B services from hotel room tariffs. Currently, restaurants located within hotels are taxed at 5% without ITC if the room rate is below ₹7,500 and at 18% with ITC if the room rate is above ₹7,500.

The federation argues that linking both elements is arbitrary and has created inconsistencies where two identical restaurants may attract different tax rates solely based on the tariff on their hotel rooms. FHRAI has proposed a more flexible structure that allows hotels and restaurants to choose between the 5% GST without ITC, or 18% GST with ITC, irrespective of their room tariff category.

FHRAI has also brought to the notice of the Ministry instances where Online Travel Agencies (OTAs) have inflated declared tariffs by including commissions in the same, effectively resulting in inflated tax liabilities and disputes in assessment.

Industry experts note that while GST simplification has been a long-standing demand of the hospitality sector, addressing ITC restrictions and ambiguities in provisions could aid in boosting transparency and efficiency in the hospitality and tourism sector.

The proposals, if accepted, are expected to bring a level-playing field for players in the hospitality sector and reduce compliance disputes while encouraging formalisation within the sector.

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