Retaurants & hotels body wants a more flexible GST structure

The Federation of Hotel & Restaurant Associations of India (FHRAI) has called on the government to separate the Goods and Services Tax (GST) on Food & Beverage (F&B) services from hotel room tariffs. The association argues that the current system of linking F&B taxation to accommodation charges creates operational challenges and is unfair to the hospitality industry.

Under the current GST framework, restaurants in hotels charging ₹7,500 or more per room per day levy 18% GST on F&B services with input tax credit (ITC) benefits. Meanwhile, those in hotels with room tariffs below this threshold apply a 5% GST rate without ITC. FHRAI has proposed a more flexible system, allowing hotel restaurants to independently choose between the 18% GST rate with ITC or the 5% rate without ITC, irrespective of room tariffs.

With the luxury and upscale hotel markets expanding and more rooms being added in the upper midmarket, luxury, and upscale segments, FHRAI believes this move could result in substantial revenue growth for the government. The association asserts that hotels in the luxury segment, which prioritise experience and quality, are unlikely to lower their room tariffs to shift into a lower GST bracket.

FHRAI has also highlighted the importance of ITC for hotels, particularly for the 417 five-star and five-star deluxe hotels listed by the Ministry of Tourism. These establishments, which operate multiple restaurants, face significant operational expenses. ITC benefits would encourage them to retain the 18% GST slab even if they are given the flexibility to opt for 5%. Similarly, midscale hotels that currently cap their room rates below ₹7,500 to avoid compliance issues may increase tariffs if F&B rates are delinked.

Standalone restaurants, including branded chains with high operational costs, are also expected to opt for the 18% GST rate with ITC benefits. With over 500,000 restaurants in India, a significant number could move to this tax bracket, further boosting government revenues. FHRAI has also urged the government to resolve past GST payment issues by regularising them on an “as-is” basis, addressing confusion caused by previous regulations.

K Syama Raju, President of FHRAI, stated that delinking F&B rates from accommodation charges would benefit both the hospitality sector and the government. He explained that such a move would not result in revenue loss but could instead drive higher GST collections. Pradeep Shetty, Vice President of FHRAI, added that many hotels are deliberately keeping room tariffs below ₹7,500 due to the current linking of F&B rates, and a policy change would encourage industry growth and ease of doing business.

FHRAI has reaffirmed its commitment to collaborating with the government, the GST Council, and state authorities to create an equitable and efficient tax system that supports the industry while boosting the economy.