Restaurant India News: Indian Hospitality Industry Seeks Clarity on GST as ITC Benefits Removed

The hospitality industry has welcomed the reduction of GST to 5 percent on hotel accommodation services with room tariffs up to Rs 7,500 per night, a move that is expected to improve India’s competitiveness against other Asian tourist destinations while giving a push to both domestic and inbound tourism.

The government’s decision to lower GST rates on key input materials and food items has also been appreciated, particularly the reduction on cakes, pastries, and namkeens sold at standalone bakeries. This change is expected to make such products more affordable for consumers.

However, industry stakeholders have expressed concern over the withdrawal of Input Tax Credit (ITC) benefits for businesses operating within the 5 percent GST slab. According to the Hotel and Restaurant Association (Western India) – HRAWI, this measure risks undermining the purpose of GST by creating cascading taxes and embedded costs. Such challenges could prove especially burdensome for hospitality businesses already managing high operational costs, including rentals and brand management fees.

Pradeep Shetty, Hotel and Restaurant Association (Western India) – HRAWI, said, “The reduction of GST to 5 per cent on hotel accommodation services with room rates up to Rs. 7,500/- per night is a welcome move. It significantly improves our competitiveness with other Asian tourist destinations and will boost both domestic and inbound tourism. We also applaud the Government's decision to reduce GST rates on essential input materials and food items, including the reduction on cakes, pastries and namkeens sold at standalone bakeries. This will make these items more affordable for consumers. However, it is disheartening to see that the Input Tax Credit (ITC) benefits have been withdrawn for this 5 per cent GST slab. A GST regime without ITC defeats the very purpose of the new tax system, as it cascades taxes and creates embedded costs. This will give rise to new complexities and severely impact businesses with high operational costs, such as rentals and brand management fees.

We urgently request the Government to restore ITC benefits to ensure the long-term health and competitiveness of the industry. Furthermore he clarified, the 'specified premises' notification to fully understand the implications of delinking F&B services from room tariffs.”

The hospitality sector now looks to the government for clarity on the "specified premises" notification, which could impact the way food and beverage services are treated separately from accommodation tariffs.