The Federation of Hotel & Restaurant Associations of India (FHRAI) has reiterated its demand to delink the Goods and Services Tax (GST) on Food & Beverage (F&B) services from accommodation charges in hotels. Citing multiple representations made to the authorities, FHRAI has emphasized that the current practice of linking F&B taxation to hotel room tariffs is both unfair and operationally challenging for the hospitality industry. Under the prevailing GST framework, restaurants within hotels charging Rs. 7,500 or more per room per day are subject to 18% GST on F&B services with input tax credit (ITC) benefits, while those in hotels with tariffs below this threshold must levy 5% GST without ITC. FHRAI has proposed a flexible system allowing all hotel restaurants to independently opt for either 18% GST with ITC or 5% without ITC, irrespective of the room rates.
With the luxury and upscale markets in the hotel sector expanding steadily and a significant share of proposed future supply of additional rooms being in the upscale, luxury and upper midmarket segment, FHRAI firmly believes that this will lead to substantial revenue enhancement for the Government as at no point of time, these hotels will shift to a lower GST bracket in order to cater to a specific market which is defined by luxury and experience.
FHRAI also emphasized the benefits of ITC for hotels, citing data from the Ministry of Tourism, which lists 417 five-star and five-star deluxe hotels nationwide, all of which operate multiple restaurants. These establishments have significant operational expenses, making ITC a critical advantage that will encourage them to retain the 18% GST slab even if given the option to shift to 5%. Furthermore, midscale hotels, which currently cap their room rates below Rs. 7,500 to avoid compliance complications, are likely to increase tariffs if F&B rates are delinked.
Standalone restaurants, particularly branded chains with high operational costs, are also expected to opt for 18% GST with ITC benefits. With over 500,000 restaurants in India, a sizable number could shift to this tax bracket, further boosting government revenues. Addressing past industry concerns, FHRAI has urged the government to regularize previous GST payments on an “as-is” basis to resolve confusion arising from past regulations. Given these compelling arguments, FHRAI has called for immediate policy intervention to delink F&B rates from hotel accommodation charges, ensuring both industry growth and enhanced tax collections.
“The delinking of F&B rates from accommodation charges is not just a necessary step for the hospitality sector but also a win-win for the government. This move will not result in revenue loss but will, in fact, drive higher GST collections. A fair and transparent taxation policy is essential to support industry expansion and ensure that businesses operate without unnecessary financial and administrative burdens,” said K. Syama Raju, President, FHRAI. Pradeep Shetty, Vice President, FHRAI, added: “We urge the government to take immediate action on this pressing issue. A lot of hotels are not crossing the room tariff threshold of Rs. 7,500 due this linking. The hospitality industry needs a progressive policy shift and further measures to facilitate ease of doing business.”
FHRAI remains committed to working with the government, the GST Council, and state authorities to ensure an equitable and efficient tax system that benefits both the industry and the economy.
