FHRAI Proposes GST Changes to Ease Financial Strain on Hotels and Restaurants, Urging Clear Separation of F&B and Room Taxes

Streamlining GST Challenges in Hospitality

The hospitality industry in India is seeking notable reforms to the Goods and Services Tax (GST), aiming to ease compliance burdens and resolve ongoing disputes. The Federation of Hotel & Restaurant Associations of India (FHRAI) has stepped forward requesting the government for a more straightforward and fair GST framework tailored to the sector’s unique needs.

Regularisation of Past GST Disputes

A core concern raised is the accumulation of legacy GST dues, the result of complex and sometimes ambiguous tax interpretations. Hotels often face demand notices stemming not from malpractices but from differences in defining “declared tariff” and “transaction value,” as well as inconsistent definitions of “specified premises.” Much confusion has arisen because of discrepancies in tariffs shown by online travel agencies compared to the actual payments made under different GST slabs.

FHRAI urges invoking Section 11A of the CGST Act, 2017, to settle these disputes effectively, allowing the taxation authorities to regularise past dues “as is” and clarify cases involving no actual service or payment. This move aims to reduce legal battles and bring peace of mind for hoteliers burdened by ambiguous tax claims.

Restoring Input Tax Credit (ITC) for Hotels

The withdrawal of the Input Tax Credit (ITC) for hotel rooms charged at a 5% GST rate below INR 7,500 has been a sore point. This change disrupts the seamless credit flow principle central to GST, disproportionately affecting mid-range hotels by hiking their operational costs and squeezing profit margins.

FHRAI advocates for restoring ITC eligibility at this lower GST rate. It suggests recognizing hotel room infrastructure akin to “plant and machinery,” making them ITC-eligible. Further, the association recommends raising the INR 7,500 threshold to INR 12,500 to account for inflation and currency fluctuations since 2017, helping mid-tier hotels maintain competitiveness.

Separating F&B GST from Room Tariffs

Another significant reform involves delinking the GST rate on Food & Beverage (F&B) services from room tariffs. Currently, restaurants within hotel premises must align their GST rates with the room tariff classification—18% GST with ITC above INR 7,500 and 5% without ITC below this figure.

This linkage introduces distortions in pricing and compliance complexity. FHRAI proposes allowing hotel-based restaurants to independently choose their GST rate (either 18% with ITC or 5% without ITC), regardless of the room tariffs. Research highlights that such flexibility could boost GST collections by over INR 4,000 crore annually thanks to better tariff management.

Impact on the Hospitality Sector’s Future

Surendra Kumar Jaiswal, FHRAI President, emphasises the importance of resolving these GST anomalies. He notes hospitality’s long-standing role as a key economic player and advocates for reforms that reduce litigation, restore investor confidence, and align with India’s vision for a developed and competitive tourism industry by 2047.

Connecting GST Reforms to Transfer and Taxi Services

While the discussion focuses on hotel and restaurant taxation, the ripple effects reach travel and transfer services—especially taxis and airport transfers that serve tourists and business travelers alike. Simplified tax regimes and reduced compliance costs in hotels encourage more tourists to opt for full-service experiences, which in turn increases demand for reliable local transportation.

Platforms like LocalsRide.com play a vital role in this ecosystem. They offer users transparent access to various transfer options, letting travelers select exact vehicles by model, seating capacity, and driver ratings. This transparency is in stark contrast to some traditional booking systems, helping tourists plan their trips confidently and complementing smoother experiences across destinations.

How These GST Changes Could Influence Taxi and Transfer Market

• Fewer tax disputes may boost hotel occupancy, indirectly increasing transfer service demand.
• Restored ITC could lower hotel costs, potentially stabilizing room rates and leading to more frequent tourist travel.
• Independent GST choice for hotel restaurants may enhance hospitality revenue, supporting ancillary sectors like local transport.

Key Concerns for Hoteliers and Transfer Providers

To Sum It Up

The FHRAI’s GST reform proposals pinpoint three crucial adjustments: settling past tax disputes under clear legal provisions, reinstating the Input Tax Credit for more affordable hotel rooms, and separating restaurant GST rules from hotel room charges. Together, these changes aim to streamline compliance, reduce operational costs, and foster a more transparent and efficient tax environment for India’s hospitality sector.

Improved tax clarity and fairness not only benefit hotels and restaurants but can also positively impact travel sectors that support them—like taxi and transfer services. As travelers seek seamless journeys from airport to city, platforms such as LocalsRide.com enhance the overall travel experience by giving clear vehicle options and transparent pricing at their fingertips.

All said, even the most thorough reviews and tax reforms can’t replace the value of personal experience. On LocalsRide, you can hire a car with a driver from verified providers at reasonable prices, empowering you to pick the best ride without hidden fees or surprises. The platform offers a wide range of vehicles, competitive fares, and user-friendly booking options, making your trip planning smoother and more affordable. 预订乘车 easily and confidently at LocalsRide.com.

Looking ahead, while these GST amendments are primarily focused on India’s hospitality tax framework, they reinforce a broader commitment to simplifying travel-related services worldwide. For travelers and transfer providers alike, staying in tune with such developments ensures smoother rides, fairer pricing, and better service quality.

Ultimately, this GST dialogue highlights the interconnectedness of accommodation pricing, taxation clarity, and ground transportation demand—offering valuable insights to all who make travel their business or pleasure.