GST Confronting India’s Hospitality Sector

The hospitality industry in India is grappling with a new wave of tax reforms as the GST Council’s latest

overhaul—dubbed GST 2.0—came into effect on September 22, 2025. While the revised slabs promise relief for consumers, they pose significant operational and financial challenges for hotels and restaurants nationwide.

Under the new regime:

• Hotel room tariffs up to `7,500 per night now attract 5% GST without input tax credit (ITC)—a drop from the earlier 12% with ITC.

• Tariffs above `7,500 remain taxed at 18% with
• Restaurant services continue at 5% GST, but ITC restrictions remain

This rate rationalization aims to reduce tax incidence for guests, but the removal of ITC for mid-range accommodations and services has triggered concern across the sector.

Industry Impact

Hospitality businesses now face a dual challenge:

• Absorbing input costs without the cushion of
• Reworking pricing models to maintain margins while staying

For example, hotels offering rooms below `7,500 must now bear the full GST burden on inputs—ranging from linen and toiletries to outsourced services—without credit recovery. This could lead to price hikes, service downgrades, or margin compression, especially for boutique and mid-scale properties.

Operational Complexity

The transition has also complicated compliance:

• Businesses must track transitional supplies and apply correct tax rates based on invoice and payment
• Section 14 of the CGST Act governs these transitional scenarios, requiring meticulous documentation and tax

Industry experts warn that while the reforms simplify slabs, they risk disincentivizing quality in the mid-tier segment. “The removal of ITC forces us to rethink procurement and pricing. It’s a balancing act between guest satisfaction and financial sustainability,” said a senior executive from a leading hotel chain.

Looking Ahead

As India’s hospitality sector continues to recover post-pandemic, GST 2.0 presents both a reset and a reckoning. Stakeholders are calling for:

• Clarifications on ITC reversals
• Sector-specific relief measures
• Digital tools for compliance and cost tracking

The coming months will reveal whether the reforms truly simplify taxation or add new layers of complexity for one of India’s most dynamic service sectors.