GST Cuts On Hotels, Economy Flights Bring Festive Cheer To Travellers

The government’s decision to lower Goods and Services Tax (GST) on hotel rooms priced below Rs 7,500 to five per cent, alongside maintaining economy airfares at five per cent, directly reduces travel costs for the majority of Indian travellers.

“Families planning festive trips, wedding travel, or weekend getaways are expected to benefit most, fuelling higher occupancy across budget and mid-range hotels. Sector players anticipate a boost in both short leisure trips and longer stays, effectively democratizing travel by making it more accessible for middle-class consumers,” says Alay Razvi, managing partner, Accord Juris, a law firm.

Adds Deepak Kumar Jain, founder and CEO, TaxManager.in, a tax advisory and e-filing portal platform, “The revised GST rates should stimulate domestic travel volumes, drive more middle-class participation in leisure tourism, and reshape spending patterns toward value-for-money experiences, while premium travel becomes slightly more exclusive.”

GST Rise Unlikely To Dent Demand In Luxury And Corporate Travel

On the flip side, business- and first-class tickets, as well as luxury hotel stays, will now attract 18 per cent GST. “While ultra-wealthy and large corporates may absorb the increase, some premium travellers are likely to downgrade to economy flights or mid-tier hotels,” says Razvi.

There may be a negligible impact on the premium travel and luxury accommodations where the ultra-rich and corporate segment comes into the picture.

For the luxury segment, the demand is largely inelastic. Likewise for corporate/business travellers, which is largely driven by company policy and entitlements. “It appears that there might not be a drastic change in travel demand and consumer spending patterns with a change in GST rates,” says Shashank Shekhar, partner, DMD Advocates.

GST Simplified: Two-Slab Structure Promises Clarity For Travel and Tourism

The revised structure simplifies GST to two broad slabs: five per cent for mass travel, and 18 per cent for premium, aimed at easing compliance and improving transparency. Automation of refunds and registration should help operators pass on benefits faster.

A simplified GST structure with fewer slabs and clearer rules will make compliance much easier for SMEs and tourism operators. “Reduction of GST rates will be passed on to the consumers, which will encourage tourism and customer spending – a win-win situation for all – consumers, travel companies and government,” says Jain.

“However, the removal of input tax credit (ITC) for hotels under Rs 7,500 may squeeze margins, even as customers see cheaper upfront bills. Competitive pressures will determine how much of the savings actually reach travellers,” adds Razvi.