Should GST Council Reinstate ITC for Hotels?
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Synopsis
The FHRAI warns that the GST Council's withdrawal of ITC could lead to crippling costs for small and mid-sized hotels, impacting their financial health and competitiveness in the hospitality sector.
Key Takeaways
- FHRAI urges restoration of ITC for hotels.
- Removal of ITC imposes heavy financial pressures.
- Linking F&B services with room rates creates compliance challenges.
- Request to raise GST threshold from Rs 7,500 to Rs 12,500.
- Classification of hotel rooms as 'Plant & Machinery' is vital for tax recovery.
New Delhi, Sep 15 (NationPress) The Federation of Hotel and Restaurant Associations of India (FHRAI) has made a significant appeal to the GST Council, urging them to reverse their decision to eliminate the Input Tax Credit (ITC) while simultaneously lowering the GST on hotel accommodations priced under Rs 7,500.
While FHRAI acknowledges that the new 5 percent rate may seem advantageous for consumers, they caution that the removal of ITC will impose substantial financial burdens on small and mid-tier hotels, which are crucial to India's hospitality framework.
Previously, hotels were subject to a 12 percent GST coupled with ITC benefits, but the new regulation mandates a 5 percent GST without ITC.
This transition implies that hotels will be unable to reclaim the 18 percent GST levied on rentals, outsourced personnel, utilities, maintenance, and renovations.
FHRAI highlighted that this shift could lead to significant budget overruns. For instance, a Rs 1 crore refurbishment project will incur an additional non-recoverable tax burden of Rs 18 lakh.
Such financial pressures, FHRAI warns, will diminish liquidity, hinder competitiveness, and deter reinvestment within the sector.
The organization also pointed out that the connection between Food and Beverage (F&B) services and room rates continues to cause confusion, revenue losses, and compliance challenges.
FHRAI is calling for the separation of F&B services from room tariffs to enhance transparency and streamline taxation.
Another important request from FHRAI is the classification of hotel rooms as “Plant & Machinery”, allowing ITC claims on renovations and refurbishments that directly contribute to revenue and tax levies.
The group has also demanded clarity regarding transitional provisions, particularly concerning accumulated credits and tariff variations around the Rs 7,500 threshold, to prevent disputes and compliance complications.
Furthermore, FHRAI has proposed raising the threshold for imposing 18 percent GST on hotel rates from Rs 7,500 to Rs 12,500.
They argue that the current threshold has depreciated over time due to inflation and foreign exchange fluctuations, rendering Indian hotels less competitive globally.
“The hospitality sector endorses the government's ambition of establishing India as a global tourism hub. However, the withdrawal of ITC is detrimental to the financial viability of small and mid-scale hotels, which cater to a majority of travelers,” stated FHRAI President K. Syama Raju.
Point of View
It is crucial to acknowledge the FHRAI's concerns regarding the GST Council's recent decisions. The withdrawal of ITC presents a complex challenge for the hospitality sector, especially for small and mid-tier hotels that serve a significant portion of travelers. Balancing consumer benefits with the financial health of the industry is vital for sustainable growth.
NationPress
15/09/2025
Frequently Asked Questions
What is the main concern of FHRAI regarding GST?
FHRAI is primarily concerned about the withdrawal of Input Tax Credit (ITC), which they believe will impose significant financial burdens on small and mid-sized hotels.
How will the change in GST rates affect hotels?
Hotels that previously charged 12% GST with ITC will now have to charge 5% without ITC, meaning they cannot recover the GST paid on various operational expenses.
What is the proposed threshold for charging 18% GST?
FHRAI has suggested that the threshold for applying 18% GST on hotel tariffs be raised from Rs 7,500 to Rs 12,500 due to inflation and exchange rate changes.
Why does FHRAI want F&B services delinked from room tariffs?
Delinking F&B services from room tariffs is aimed at enhancing transparency and simplifying tax compliance for hotels.
What is the significance of classifying hotel rooms as 'Plant & Machinery'?
This classification would allow hotels to claim ITC on renovations and refurbishments, which are crucial for enhancing revenue and tax contribution.
