The Hotel and Restaurant Association (Western India), or HRAWI, has requested the government to balance consumer benefits with industry sustainability, proposing 5 per cent goods and services tax (GST) with 50 per cent input tax credit (ITC) benefit, similar to provisions for banking institutions, or 18 per cent GST with full ITC on two-thirds of the value for room rates under Rs 7,500.
HRAWI, which counts restaurants and hotels up to the five-star deluxe category among its members, said on Wednesday that it has submitted a comprehensive representation to the Prime Minister seeking urgent rationalisation of the newly announced GST structure for the hospitality industry. This follows the recent GST reforms, which reduced the tax slab on room rates up to Rs 7,500 from 12 per cent with ITC to 5 per cent without ITC benefits.
“To balance consumer benefits with industry sustainability, we are proposing 5 per cent GST with 50 per cent ITC benefit similar to provisions for banking institutions, or 18 per cent GST with full ITC on two-thirds of the value for rooms under Rs 7,500,” Dilip Kothari, tax advisor, HRAWI, said in a statement. “We also strongly recommend the delinking of food and beverage (F&B) services from room tariffs and allowing F&B providers to choose between 5 per cent GST without ITC or 18 per cent with full ITC. Lastly, make the composition scheme mandatory for F&B services with an annual turnover of up to Rs 5 crore.”
HRAWI President said that while the association appreciates the government’s intent to simplify GST and offer lower rates to consumers, the absence of ITC reverses years of progress towards a seamless tax-credit system. HRAWI noted that the lack of ITC benefits increases operating costs and raises the cost of setting up new hotels by at least 10 per cent, as credit will not be available on essential inputs such as equipment, linen and crockery. Hotels operating from leased premises will be disproportionately affected since rent accounts for 20–25 per cent of operational costs.
“This will inflate costs for hotels, particularly those in the budget and mid-scale segments, and could make accommodation less competitive compared to neighbouring countries,” he said.
The hospitality sector contributes 5.8 per cent to GDP and supports over 32 million jobs, HRAWI added.
“We urge the government to reconsider the decision and engage in constructive dialogue with industry stakeholders to ensure a balanced approach that supports both growth and affordability. GST rationalisation is not only an industry imperative but also an enabler for inclusive economic growth. HRAWI remains committed to collaborating with the government to develop a tax framework that promotes growth and innovation in the hospitality sector,” he added.
