Published on
September 4, 2025
As part of a major overhaul to boost the tourism sector and the discretionary spending of Indian citizens, the Government of India, through the GST Council led by Finance Minister Nirmala Sitharaman, has implemented significant changes to the Goods and Services Tax (GST) structure. The revised rates aim to make travel more affordable for a large segment of the population, thereby stimulating domestic tourism and overall economic activity. The revised tax rates will go into effect on September 22, 2025, and are expected to benefit millions of travelers across the country.
In a bid to promote tourism and encourage domestic travel, the GST on hotel rooms priced under ₹7,500 will be reduced to 5% from the earlier 12%. This move is expected to directly lower the cost of accommodations for budget-conscious travelers. Moreover, economy-class airfares will see a GST reduction from 12% to 5%, making air travel more affordable, particularly for leisure and business travelers. The changes aim to stimulate both domestic tourism and economic recovery in India post-pandemic.
Key Reforms in India’s Tourism Sector:
- GST on Budget Hotels:
- Hotel rooms costing less than ₹7,500 will be taxed at 5% GST, a significant reduction from the previous 12% with Input Tax Credit (ITC).
- Rooms priced below ₹1,000 per night remain exempt from GST.
- Premium hotel rooms, those over ₹7,500 per night, will continue to attract an 18% GST rate.
- GST on Air Travel:
- Economy class airfares will now be subject to a 5% GST, reduced from 12%.
- Business class tickets will attract a 12% GST, down from the previous 18%.
- Revised GST Structure:
- The GST slabs have been simplified to two main categories: 5% and 18%, with a special 40% rate for luxury and sin goods.
- The changes are designed to ease living costs and boost consumption, with a focus on essential sectors, including tourism, hospitality, and travel.
Impact of GST Reform on India’s Travel and Tourism Sector
The reductions in GST on budget hotels and airfares represent a pivotal shift in India’s approach to fostering affordable travel. This change comes at a time when the country is looking to rejuvenate its tourism industry after the global disruptions caused by the pandemic. By making travel more affordable, the government expects to see a surge in domestic travel, which, in turn, will contribute significantly to the national economy.
The revised tax rates also offer a boost to the hospitality industry, particularly in the budget and mid-range segments, where most domestic travelers prefer to stay. Hotels and resorts will now be able to offer more competitive pricing, attracting a broader base of tourists.
Economic Benefits of the GST Reduction for Tourists:
- More Affordable Travel: Travelers, especially budget-conscious Indians, will benefit from lower prices on hotel stays and flights. This affordability is likely to lead to an increase in the frequency of domestic trips.
- Boost to Discretionary Spending: With the cuts in GST, travelers will have more disposable income to spend on other aspects of their trips, such as dining, entertainment, and local experiences, further stimulating the economy.
- Increased Demand for Domestic Tourism: The affordability of budget travel options, especially hotel stays and flights, is expected to drive more domestic tourism. Many travelers who may have considered international vacations may now opt for domestic destinations.
Broader Economic Impact of the GST Reform
Beyond the travel and tourism sectors, the GST overhaul is expected to have a ripple effect across the Indian economy. By reducing the GST on essential services such as transportation and accommodation, the government is aiming to make these services more affordable and accessible to the general public. This will likely increase consumer spending across multiple sectors, further driving economic growth.
Simplification of GST Slabs to Promote Ease of Doing Business
As part of the broader GST reforms, the Indian government has also simplified the GST structure by reducing the number of tax slabs. Previously, India had multiple complex GST slabs, ranging from 12% to 28%. The new simplified GST structure introduces only two primary slabs: 5% and 18%. This simplification is expected to make the system easier to navigate for businesses, particularly small and medium-sized enterprises (SMEs), contributing to a more business-friendly environment.
The reduction of the GST on hotels and airfares also supports the Make in India initiative by encouraging both domestic and international tourists to explore India, further supporting the Indian hospitality industry.
Implications for the Hospitality Sector
With the revised tax rates, budget hotels stand to benefit significantly. For many travelers, the affordability of a budget-friendly hotel stay is a primary factor when choosing a destination. The GST reduction will likely lead to a surge in domestic travelers opting for more affordable hotels, especially those that fall under the ₹7,500-per-night category. For hotels in the ₹1,000-₹7,500 range, this reform is expected to lead to a more attractive and competitive pricing structure.
For luxury hotels, the continued 18% GST rate on rooms over ₹7,500 will maintain their exclusivity, but they may also see increased demand from business travelers who benefit from lower air travel costs.
Future of India’s Tourism Industry
This GST reduction is part of India’s broader vision of becoming a global tourist hub. The government’s efforts to make travel more affordable for the middle class and increase the ease of doing business for tourism-related industries will likely result in an expanded tourism sector. As part of its long-term goals, India plans to develop more infrastructure and enhance its tourism offerings to cater to both domestic and international travelers.
- Investment in Infrastructure: India is expected to invest in enhancing airport facilities, improving hotel infrastructure, and building attractions to make the country more attractive to foreign and domestic tourists alike.
- Promoting Local Destinations: With the new GST rate cuts, the government will likely focus on promoting regional and local destinations, which could lead to more even development across the country.
Conclusion
In conclusion, the recent GST cuts on budget hotels and air travel represent a transformative step for India’s tourism industry. These reforms aim to make travel more affordable, stimulate economic growth, and encourage domestic tourism. By focusing on reducing costs and simplifying the tax structure, India is positioning itself as a more attractive destination for travelers both within the country and from abroad. The shift in GST rates reflects the government’s commitment to making tourism more accessible and affordable for a wider section of the population, ultimately driving the nation’s economic recovery and growth.
