FHRAI Seeks GST Relief and ITC Restoration for Hotels and Restaurants: Appeals for Regularisation of Past Dues under Section 11A

A modern restaurant exterior at twilight, showcasing large glass windows and a prominent sign stating 'Goods and Services Tax (GST) Regulations Applicable to Food and Beverage Services'.

Federation of Hotel and Restaurant Associations of India (FHRAI) met Finance Minister Nirmala Sitharaman to seek relief and policy reform for the hospitality sector, particularly around GST implementation since 2017.

1. Regularisation of Past GST Dues

  • FHRAI requested regularisation of past GST disputes arising from interpretational ambiguities.
  • It urged the government to use Section 11A of the CGST Act, 2017 (introduced via Finance (No. 2) Act, 2024) to settle these disputes.
  • Many notices were allegedly issued based on inflated room rates shown by online travel agencies, not the actual transaction values received by hotels.

2. Restoration of Input Tax Credit (ITC)

  • FHRAI sought the restoration of ITC for hotels under the 5% GST slab.
  • It argued that removal of ITC increased operational costs (rent, maintenance, and supplies), reducing profitability and employment stability.

3. Revision of GST Structure

  • The current rate: 5% GST without ITC for room tariffs up to ₹7,500.
  • FHRAI proposed:
    • Revising the ₹7,500 threshold to ₹12,500, accounting for inflation since 2017.
    • Recognising hotel rooms as “plant and machinery” to allow ITC eligibility.
  • The Hotel and Restaurant Association (Western India) suggested:
    • Either 5% GST with 50% ITC (like banks), or
    • 18% GST with full ITC on two-thirds of room value below ₹7,500.

4. Restaurant GST Flexibility

  • FHRAI asked that hotel-based restaurants be allowed to choose between:
    • 18% with ITC, or
    • 5% without ITC,
      irrespective of room tariff linkage.
  • It said linking restaurant tax to room rates distorts pricing and limits flexibility.

5. Economic Impact

  • According to an FHRAI–CERTH study, mid-scale hotels could raise tariffs during high-demand periods if thresholds are relaxed, boosting GST revenues by ₹4,074 crore annually.

6. Objective

  • The association believes these changes would:
    • Simplify compliance,
    • Enhance government revenue, and
    • Strengthen the hospitality industry’s competitiveness and sustainability.

Legal Context:
Section 11A of the CGST Act, 2017 empowers the Government to regularise non-levy or short-levy of tax due to interpretational or procedural ambiguity, thereby protecting bona fide taxpayers from retrospective disputes.