Dr. Bhupesh Kumar
As India inches closer to a major overhaul of its Goods and Services Tax (GST) regime, the hospitality sector is watching closely. The proposed GST rationalisation—or GST 2.0— seeks to simplify the current four-tier structure into a two-slab system of 5% and 18%, while keeping a 40% levy on luxury and sin goods. The move is expected to ease compliance, boost consumption, and align India’s taxation with global norms. But for hotels and restaurants, the implications could be transformational.
Relief for the Mid-Tier Segment: One of the most significant proposals under discussion is the reduction of GST on hotel rooms priced under Rs 7,500 per night—from 12% to 5%. This measure directly targets India’s vast mid-market hotel segment, which caters to both domestic tourists and business travelers. Lower tariffs could make stays more affordable, improve occupancy rates, and stimulate demand at a time when the sector is recovering from pandemic shocks.
Food and Beverage (F&B) services, a major revenue source for hotels, are also likely to see a simplified structure: 5% without input tax credit (ITC) or 18% with ITC. Essentials such as complimentary breakfast and toiletries will be taxed at 5%, reducing operational ambiguities.
Luxury Hotels: A Mixed Bag: While mid-range properties stand to benefit, the luxury segment may see limited relief. Hotels charging above Rs 7,500 a night will continue to attract 18% GST, while luxury add-ons—including alcohol and premium services—could face a steep 40% levy. This effectively maintains the price pressure on high-end tourism and may limit India’s competitiveness in attracting ultra-premium international travelers.
Industry Demands: A Uniform 5% With ITC : Leading industry bodies such as the Federation of Hotel & Restaurant Associations of India (FHRAI) and the National Restaurants Association of India (NRAI) have urged the government to go further. They have demanded a uniform 5% GST rate with ITC across hospitality services, arguing that it would simplify operations and bring India closer to global standards. Competing destinations in Asia—including Thailand, Malaysia, and Singapore—levy tourism taxes in the range of 6–10%, making Indian hotels relatively expensive.
Boost to Tourism and Employment: The economic case for rationalisation is strong. The hospitality industry is labour-intensive and has a high multiplier effect: every rupee spent generates Rs 3.5 in output, and every direct job creates more than three indirect ones. Lowering GST could, therefore, not only spur travel but also generate large-scale employment and attract new investments in infrastructure.
Stock markets have already factored in this optimism. Several listed hotel chains have rallied by up to 50% in FY26, reflecting expectations of policy-driven growth.
Compliance and Ease of Doing Business: Beyond rate cuts, simplification of compliance is another major benefit. The current regime often creates disputes over classification—whether a meal bundled with a room should be taxed differently from standalone dining, for example. By delinking F&B charges from room tariffs, the proposed system would eliminate such ambiguities, reducing friction between businesses and tax authorities.
The Road Ahead: The upcoming GST Council meetings will decide the contours of this reform. While the government’s priority remains balancing revenue with industry relief, the hospitality sector hopes for a bold approach that prioritises growth and competitiveness.
If implemented effectively, GST rationalisation could be the game-changer the industry has long awaited—making India’s hotels more affordable, encouraging inbound tourism, and unlocking the sector’s potential as a key driver of the economy.
(The writer is principal, IHM Ranchi. Views are personal)
