Industry status, green tourism, and input tax credit: Hospitality sector’s wish-list for Budget 2025

Atithi Devo Bhava. (The guest is God). 

Given India’s diverse landscape and cultures, it is no wonder that the country is a favourable travel destination—among both domestic and international tourists. Hospitality is a significant part of tourism in India, which abides by the above principle of treating guests with respect. 

Hospitality in India extends beyond providing a roof to sleep under for a certain sum of money. It starts from the time one arrives at the doorstep and extends way beyond, after one has checked out of a hotel or paid the bill at a restaurant. 

That India is taking tourism and hospitality seriously was seen in the 2024 interim Budget, when Finance Minister Nirmala Sitharaman announced Rs 2,449,62 crore to the tourism sector—an increase of 44.7% from FY2023. 

The government launched Swadesh Darshan 2.0, sanctioning 76 projects across theme-based tourist circuits. It also took steps to facilitate spiritual tourism across Uttar Pradesh, Uttarakhand and West Bengal. 

Now all eyes are on the upcoming Budget on February 1. Will the hospitality sector finally get the industry status it has been asking for? What other measures will the government take to give further fillip to the sector? 

Ahead of the Union Budget 2025, YourStory reached out to key players in the  Indian travel and hospitality space to understand their demands and expectations from the Finance Minister. 

Industry status

For the longest time, one key demand by the hospitality sector has remained unanswered—‘industry’ status. 

The Indian hospitality sector contributes to about 8% (as of 2024) of India’s total employment—from entry-level personnel to skilled professionals. Going forward, the sector is expected to create as many as 61 lakh new jobs by 2036-37. 

The hospitality market in India, which was pegged at $29.3 billion in 2024, is projected to grow to $47.83 billion by 2034, at a CAGR of 5%. 

An industry status will encourage more investments and development in the sector, says Rajesh Magow, Co-founder and Group CEO of online travel company MakeMyTrip. 

Manbeer Choudhary, CMD at Noormahal Group, parent of Noormahal Palace, believes granting industry status to the hospitality sector could lead to “improved access to finance, regularised policies, and a more strategic approach to tourism development.”

Pranav Rungta, Vice President of National Restaurant Association of India (NRAI), concurs with this view and adds that the food and beverage sector, which is a part of hospitality, is also in dire need of ‘industry’ status. 

“Granting food services an official industry status and creating a dedicated ministry or department for food services would ensure more focused policy support, targeted welfare programmes for employees, and the development of equitable ecommerce policies that foster growth,” says Rungta, who is also the co-founder of Mumbai-based restaurant Nksha.  

Restoration of input tax credit

On the tax front, restaurateurs seek restoration of input tax credit and other tax concessions. 

Input tax credit (ITC) refers to the GST (goods and services tax) paid on the purchase of goods and services that are used for the business. Today, restaurants fall under the 5% GST rate, with no option to claim the ITC or the 18% GST rate under the GST composition scheme. 

Earlier this month, NRAI, which represents five lakh-plus restaurants across the country, wrote to the FM seeking a new slab of 12 to 18% GST with ITC, as the government deems fit, to be introduced for restaurants not located in hotels with room tariff of more than Rs 7,500. 

“Restoring ITC and providing tax incentives would ease financial burdens and encourage investments,” says Bobby Patel, Co-founder and Culinary Director at Thyme & Whisk, a restaurant run by Trinetra Ventures.

Rajan Sethi, Managing Director of Bright Hospitality, remarks, “Opening up the ITC system for restaurants and introducing a special GST rate for budget and mid-scale hotels could make the sector more competitive and traveller-friendly.”

Promoting India as a global tourist destination

According to India Brand Equity Foundation, foreign tourist arrivals are forecasted to hit 30.5 million by 2028. Stakeholders in the tourism sector hope the Budget makes announcements that would boost international tourism. 

“The industry would be delighted if the FM allocates resources for an international campaign under the Incredible India! initiative,” says Magow of MakeMyTrip. 

“Enhanced marketing and promotional efforts to position India as a global tourism hub would benefit the entire sector,” opines Saurabh Gahoi, Senior Vice President of Ramee Group of Hotels. 

Choudhary of Noormahal Group suggests that, in order to foster inbound tourism, foreign guests should either be charged zero GST or receive a GST refund. 

Ritwik Khare, Founder and CEO of ELIVAAS believes a comprehensive 100% tax coverage across different segments could alleviate financial pressures. “Adjusting the taxation rates can make tourism more attractive and encourage both domestic and international visitors,” he adds. 

Other GST reforms 

Stakeholders have laid down GST-specific demands across the many verticals of the hospitality sector. 

Players in the hotel industry want GST credit for hotel construction and rationalising GST rates to reduce the overall cost of accommodation. 

Online travel agents (OTAs) seek certain tweaks on GST registration. Mandatory state-wise GST registration with a physical presence in every state adds to their administrative costs and management overheads, they say. 

“Since the nature of OTAs is online, if registration in different states can be allowed using the central head office address, it would streamline operations, reduce costs, and improve efficiency,” Magow of MakeMyTrip explains. 

Stakeholders also want GST disparity on bus bookings to be addressed. Customers booking a non-AC bus through an online booking platform are charged 5% GST, while no GST is charged on direct bookings with bus operators. 

“This inconsistency undermines the objective and is against the spirit of the Digital India initiative,” Magow says. 

Players in the hospitality sector want the government to revisit the GST notification on commercial leases under the reverse charge mechanism. According to the reverse charge mechanism (RCM), GST has to be paid and deposited by the recipient of services with the government, and not by the supplier of these services.

Revisiting the GST notification on commercial leases (renting of commercial properties requires registered recipients to discharge the 18% GST liability) under RCM is essential to reduce financial burden, says Aji Nair, CEO of Mirah Hospitality.

“The sector can then focus on innovation, customer experiences, and long-term growth," he adds.

Promotion of green tourism

The hospitality and tourism sector wants incentives that encourage eco-friendly practices and dedicated investment in green tourism infrastructure. 

Tax rebates for eco-friendly initiatives, such as energy-efficient operations and sustainable tourism practices, would be a significant step towards aligning the sector with global sustainability goals, recommends Gahoi of Ramee Group. 

“Incentives for adopting green technologies, tax benefits for sustainable certifications, and grants for waste management and water recycling would support eco-friendly practices and attract environmentally conscious travellers,” says Bright Hospitality's Sethi. 

The Ministry of Tourism formulated the National Strategy for Sustainable Tourism in 2022, to ensure inclusive, resilient, carbon-neutral and resource-efficient tourism, while safeguarding the natural and cultural heritage of the country. 

“Aligning with the United Nations Sustainable Development Goals, the policies for green tourism can effectively serve the conscious travellers in the era focussed on sustainability,” suggests Choudhary. 

The hospitality industry also seeks investments in tourism infrastructure and sustainability initiatives across emerging destinations including Ayodhya, Lakshadweep, Jaisalmer, Pushkar and Ajabargh. 

Other recommendations

The government’s announcement in the last Budget that any rental income earned by the owner of residential house property shall be treated as ‘income from house property’ instead of ‘business income’ can adversely impact the growth of homestays, says Magow. “We request the FM to review this,” he adds. 

Stakeholders believe special allocation for infrastructure development, especially in Tier II and Tier III cities, would boost tourism in regional areas and generate employment opportunities for the youth in their hometowns. 

Food & beverage (F&B) players want the FM to address food inflation and the challenges associated with the intricate tax structures on alcohol and aerated beverages, which “impact profitability”.  

Ashutosh Goyal, Director & Partner at Ananta Hotels and Resorts sums it up, "By prioritising infrastructure development, tax benefits for green initiatives, and skill-building programmes, the government can empower local communities and bolster India’s appeal as a luxury destination. This is an opportunity to make India not just a place to visit but an experience that leaves a lasting impression on every traveller."

(The copy was updated with more information.)