GST 2.0 adversely impacting small hotels, says association

The Federation of Hotel and Restaurant Associations of India on Saturday flagged adverse impact of the new Goods and Services Tax framework on hotels with room tariffs below Rs 7,500 and urged the Centre to take steps for reinstating input tax credit (ITC).

Under the new GST 2.0, hotels with room tariffs below Rs 7,500 face a five percent GST rate without input tax credit. Aimed at preventing double taxation, input tax credit is a mechanism under the GST system that allows businesses to offset the GST that they pay on purchases of goods and services against the GST they collect on sales of goods and services.

The association, representing over 1 lakh hotels and 5 lakh restaurants, stated that the withdrawal of input tax credit had increased unrecoverable cost on rentals, utilities, manpower and capital expenditure. This has disproportionately affected hotels in Tier II and Tier III cities, deterring investments and hindering the growth of domestic tourism, said the federation.

Addressing media in New Delhi, association president Surendra Kumar Jaiswal called for urgent government intervention to safeguard the industry, which supports over 60 million livelihoods and drives India’s service economy.

“Our industry is one of the largest generators of employment and a key driver of India’s service economy. Yet, the GST framework without ITC has created inequities that threaten our competitiveness,” Jaiswal said.

Jaiswal also addressed the issue of “copyright harassment”, wherein hotels and restaurants face overlapping royalty demands from multiple copyright societies, leading to legal and financial strain. He called for clear definitions of copyright society roles and protections against unjust litigation.

He outlined the association’s vision of securing infrastructure status and full industry status for the hospitality sector to unlock low-cost credit and promote balanced regional development, particularly in smaller towns.

“We are not seeking concession, but fairness, clarity and parity. By restoring the ITC, addressing copyright ambiguities, and granting infrastructure and industry status, the government can empower hospitality to support the vision of Viksit Bharat-2047,” Jaiswal added.