FHRAI calls for separation of F&B GST from hotel room rates – ET TravelWorld

The Federation of Hotel & Restaurant Associations of India (FHRAI) has once again called on the government to separate the Goods and Services Tax (GST) on Food & Beverage (F&B) services from hotel room tariffs. The current taxation structure, which links F&B GST to room rates, has created operational difficulties and unfair financial burdens on the hospitality sector. FHRAI has made several representations to the authorities highlighting the negative impact of this approach on hotels of all categories.

Under the present system, hotels with room tariffs of INR 7,500 or more are required to charge 18 per cent GST on F&B services, with input tax credit (ITC) benefits. In contrast, hotels with room tariffs below this threshold must levy 5 per cent GST on F&B without ITC. FHRAI has proposed a more flexible system that would allow all hotel restaurants to opt for either 18 per cent GST with ITC or 5 per cent without, irrespective of the room rates. This approach, it argues, would reduce complications for businesses and improve operational efficiency.

As the luxury and upscale hotel segments continue to grow, FHRAI believes that delinking F&B GST from room tariffs would lead to enhanced tax revenue for the government. Many hotels in these segments are unlikely to shift to a lower GST bracket, ensuring consistent revenue generation. Furthermore, the association highlights the benefits of ITC for hotels, particularly five-star and deluxe establishments, which incur significant operational costs.

FHRAI has also pointed out that midscale hotels, which are currently constrained by room tariffs below INR 7,500, may increase their rates if F&B taxation is delinked. Similarly, standalone restaurants with high operational costs would be more likely to opt for the 18 per cent GST with ITC, further boosting government revenues.

“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,” said K. Syama Raju, President of 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 INR 7,500 due to this linking.”