The Federation of Hotel & Restaurant Associations of India (FHRAI) used its 69th Annual General Meeting to sound the alarm on a narrow but influential corner of the Goods and Services Tax (GST) framework: the 5% tax slab for room tariffs up to ₹7,500 a night that is levied without Input Tax Credit (ITC).
FHRAI President warned that this structure is pushing unrecoverable taxes into operating costs, undermining affordability for domestic travellers and choking investment flows into mid-market hotels that form the backbone of India’s tourism ecosystem.
Below is a concise deep-dive that adds the GST policy background and hard industry data to frame FHRAI’s plea.
What the GST rule is — and why ITC matters?
In the post-GST architecture, the Council introduced differentiated treatment for hospitality: hotel rooms with tariffs up to ₹7,500 per unit per night are taxed at 5% without the benefit of ITC, while higher-priced rooms can fall into higher slabs but are eligible for ITC if assessed under those categories.
The practical implication: budget and mid-market hotels cannot recover the embedded GST they pay on inputs (rent, utilities, outsourced services, capex), making the 5% levy effectively a non-creditable cost. The GST Council’s explanatory material and rate sheets record this mandatory, ITC-denied 5% treatment for the sub-₹7,500 category.
Why that distinction matters: ITC lets businesses offset tax paid on purchases against the tax they collect from customers. When ITC is disallowed, GST becomes a cascading cost — increasing operating expenses and squeezing margins for hotels that typically operate on thin unit economics.
Scale of the segment affected
FHRAI says roughly 90% of Indian hotels charge room tariffs below ₹7,500 — in other words, the policy touches the large majority of India’s room inventory. The association represents over 100,000 hotels and 500,000 restaurants, and it argues that the denial of ITC disproportionately hurts properties in Tier-II and Tier-III cities, where tariffs and margins are lower and capital access is already constrained. FHRAI’s representation places the sector as central to livelihoods — directly and indirectly supporting an estimated 60 million jobs.
Independent industry metrics underscore the sector’s size and rapid recovery: Travel and Tourism’s contribution to India’s GDP has rebounded strongly post-pandemic, with international visitor spend and domestic travel both recording sharp recoveries according to the World Travel & Tourism Council (WTTC) and government reports.
FHRAI says roughly 90% of Indian hotels charge room tariffs below ₹7,500 — in other words, the policy touches the large majority of India’s room inventory. The association represents over 100,000 hotels and 500,000 restaurants, and it argues that the denial of ITC disproportionately hurts properties in Tier-II and Tier-III cities, where tariffs and margins are lower and capital access is already constrained. FHRAI’s representation places the sector as central to livelihoods — directly and indirectly supporting an estimated 60 million jobs.
Independent industry metrics underscore the sector’s size and rapid recovery: Travel and Tourism’s contribution to India’s GDP has rebounded strongly post-pandemic, with international visitor spend and domestic travel both recording sharp recoveries according to the World Travel & Tourism Council (WTTC) and government reports.
