The Hotel and Restaurant Association of Haryana (HRAH) has urged the Goods and Services Tax (GST) Council to introduce a uniform 5 per cent GST rate on hotel rooms and food services across all categories, doing away with the existing ₹7,500 room-rent threshold. The association believes this reform is essential to remove long-standing confusion, improve affordability, and support the sustainable growth of India’s hospitality sector.
Confusion Over Dual GST Rates Hurting Hospitality
At present, India’s hospitality GST structure applies different tax rates based on room tariffs, creating operational and customer-facing challenges. Food served in standalone restaurants and in hotel rooms priced at ₹7,500 or below attracts 5 per cent GST without input tax credit (ITC). However, hotel rooms priced above ₹7,500 per night are taxed at 18 per cent GST with ITC.
According to HRAH, this leads to an illogical situation where the same food item is taxed differently, either at 5 per cent or 18 per cent, depending solely on where it is served within the same hotel property.
Col. Manbeer Choudhary (retd.), President of HRAH and former head of the Federation of Hotel and Restaurant Associations of India (FHRAI), highlighted that guests often struggle to understand these varying GST rates, leading to dissatisfaction and billing disputes.
Call for Structural GST Reform
“We urge the government to adopt a uniform 5% GST rate across all categories, without the ₹7,500 limit, as a key structural reform for the hospitality sector,” Col. Choudhary said.
He emphasized that hotels and restaurants are currently forced to apply two different GST rates for identical services, complicating compliance and increasing administrative costs, especially for properties that operate across multiple tariff segments.
₹7,500 Threshold No Longer Relevant
HRAH pointed out that the ₹7,500 room tariff benchmark was introduced nearly nine years ago and has lost relevance in today’s economic environment. Persistent inflation, rupee depreciation, and sharply rising costs of construction materials such as steel, cement, and fittings have significantly increased project and operating expenses.
In addition, hotels are grappling with higher wages, statutory compliance costs, energy bills, and financing expenses. As a result, room tariffs have risen not to improve profitability but merely to remain viable. This has pushed many mid-scale and business hotels into the 18 per cent GST bracket, even though they do not fall into the luxury category.
Today, ₹7,500 represents moderate accommodation, not premium hospitality. Yet mid-segment hotels are taxed at the same rate as high-end luxury properties.
Impact on Occupancy and Competitiveness
The existing GST structure has led to several unintended consequences, including:
- Higher tax burden on mid-scale hotels
- Reduced affordability for guests
- Lower occupancy rates as higher taxes are passed on to consumers
- Compliance challenges for hotels offering mixed tariff rooms
- Reduced competitiveness compared to international hospitality markets
According to HRAH, these factors collectively weaken India’s hospitality ecosystem at a time when tourism recovery and growth are critical.
Uniform GST Could Boost Revenue and Growth
Col. Choudhary noted that rationalising GST rates would not only support hotels and restaurants but could also increase overall GST collections through improved compliance, higher occupancy, and stronger sector growth.
“The revision of GST will help in boosting the hospitality sector as well as lead to an increase in GST collection,” he said.
Industry Awaits GST Council’s Response
The hospitality industry now looks to the GST Council for a comprehensive review of the current tax framework. A uniform 5 per cent GST rate on rooms and meals, without restrictive thresholds, is being seen as a long-overdue reform that could simplify taxation, enhance transparency, and strengthen India’s tourism and hospitality landscape.
Source: The Tribune India