A headline reduction in the tax on lower-priced rooms has been met with guarded approval from India’s largest hotel association. In a press statement, the Federation of Hotel & Restaurant Associations of India (FHRAI) welcomed the GST Council’s move to rationalise rates “to benefit consumers, improve compliance and support growth,” but said the simultaneous withdrawal of Input Tax Credit (ITC) raises serious concerns for the segment that supplies most of the country’s room inventory.
The GST Council this month reduced the goods and services tax on hotel rooms priced below 7,500 rupees a night to 5% from 12%. FHRAI said the rate cut was initially consumer-friendly but that removing ITC — which allows businesses to offset taxes paid on inputs such as electricity, outsourced manpower, maintenance and capital expenditure — undermines the GST principle of seamless credit flow and creates structural imbalances in the sector.
“Without ITC, hotels will shoulder an additional 18% tax burden on essentials like rentals, outsourced manpower, utilities and maintenance,” FHRAI president K Syama Raju said in a statement, adding that the change would erode margins and deter reinvestment.
The association highlighted that a refurbishment project worth 10 million rupees would now carry an additional 1.8 million rupees in unrecoverable taxes. FHRAI said this would raise both capital and working-capital requirements, place stress on liquidity, and weaken the financial stability of hotels that form the backbone of India’s tourism infrastructure.
FHRAI also flagged unresolved issues such as the linkage of food and beverage services with room tariffs, which it said creates revenue leakages and compliance burdens. It has called for delinking F&B from tariffs, clearer transition rules for accumulated credits, and recognition of hotel rooms as “plant and machinery” to make renovation costs eligible for tax credits. It also proposed increasing the ceiling for the 18% GST rate from 7,500 rupees to 12,500 rupees, citing inflation and currency depreciation since 2017 as factors that have reduced the threshold’s real value.
Other demands include clarity on transition provisions, especially treatment of accumulated credits, and regularization of past dues that the industry says arose from ambiguities in GST rules rather than deliberate evasion.
“The hospitality industry stands committed to supporting the government’s vision of making India a global tourism hub,” Raju said. “However, the withdrawal of ITC while reducing GST on hotel rooms disrupts the financial sustainability of small and mid-scale hotels.”
The association has asked the GST Council to restore ITC in full, or at least allow 75 percent credit, while also addressing the threshold and F&B issues. Without these measures, it warned, growth and competitiveness in India’s hotel sector will be at risk.
