Budget 2025: Indian Hotels "Grossly Under-Roomed" to Compete with Asian Destinations, Seek Tax Cuts

It's been about a year since Prime Minister Narendra Modi's pictures from the serene beaches of Lakshadweep sparked an internet debate on whether it can compete with international tourist destinations like Maldives or Thailand. Since then, thousands of Indian and foreign tourists have flocked to the coral islands. Not just Lakshadweep, but several key destinations across India have seen a surge in tourist arrivals.

However, according to the Hotel Association of India (HAI), "India is grossly under-roomed compared to competing Asian destinations" to cater to the rising demand in tourism.

The industry bodies, including the Hotel Association of India (HAI) and the Federation of Hotel & Restaurant Associations of India (FHRAI), are demanding infrastructure status to attract more investment in the sector.

"Hotel projects are capital-intensive with long gestation periods. The high commercial interest rates currently applicable to hotels make the return on investment in hotels unattractive," said HAI.

The hospitality industry has put forth some key demands, including infrastructure status, single-window licensing, and tax rationalisation, for Finance Minister Nirmala Sitharaman in the Union Budget 2025-26, set to be presented on February 1.

Why Hotels Want Infrastructure Status

Developed by the Reserve Bank of India (RBI) and the government, the Harmonised Master List (HML) is a standardised classification of infrastructure subsectors such as roads, railways, power, and telecommunications. It ensures uniformity across policies and institutions, guiding investments in critical infrastructure areas. 

Projects under HML benefit from easier access to funding, tax incentives, and priority sector lending, which help attract both domestic and foreign investments. Additionally, it facilitates risk assessment for financial institutions and encourages private sector participation in these sectors. 

Currently, hotels built with an investment of Rs 200 crore or more are accorded infrastructure status under the RBI's infrastructure lending norms. The industry association has requested that this threshold be reduced to Rs 10 crore to boost budget segment hotels. 

"The major issue the industry is facing is the facility of long-term financing at affordable rates. If this status is given, it will be a game changer for the industry," said FHRAI Secretary General Jaison Chacko. 

He added that this has been the industry's demand for many years, and at a time when operational costs have surged, long-term financing is essential to meet sustained financial needs.

Also Read: Budget 2025: Infra, FMCG, Pharma, and Real Estate - Key Sectors FM Sitharaman Likely to Focus On

Single Window Approval

Another key expectation of the sector, as highlighted by FHRAI Secretary General Jaison Chacko, aligns with Prime Minister Narendra Modi's "ease of doing business" initiative. 

According to the Hotel Association of India (HAI), operating hotels requires numerous approvals, NoCs, and licences, which come with high costs and a lengthy, cumbersome acquisition process. 

"This, coupled with high operating costs that are largely fixed in nature, makes hotel operations extremely vulnerable to changes in the business environment," the industry body stated. 

Chacko noted that a few years ago, the association classified the number of licences and clearances required to start a hotel into two stages: the pre-operation stage and the operation stage. Over the lifespan of a hotel, this number can go as high as 70 to 80. 

"Every department, every agency, every authority is asking for certain things," he said.  In light of these challenges, the industry is urging the government to provide a single-window clearance system.

Tax Rationalisation

Like other sectors grappling with consumption and high inflation, the hospitality industry is seeking lower tax rates and simplification. According to the Hotel Association of India (HAI), reducing the GST on hotel rooms above Rs 7,500 is a key demand for Finance Minister Sitharaman. They propose lowering the GST rate from 18% to 12%, aligning it with competing Asian countries [3).

Additionally, the industry is demanding a reduced tax rate (including surcharge and cess) of 25% for all non-corporate entities, including Limited Liability Partnerships (LLPs) and Associations of Persons (AOPs).