Indian travellers may soon breathe a sigh of relief, as the Goods and Services Tax (GST) Council has rolled out a major restructuring of tax slabs for both hotel accommodations and airline tickets. This landmark revision, finalized during the Council’s 56th meeting on September 3, 2025, chaired by Finance Minister Nirmala Sitharaman in New Delhi, comes at a particularly strategic time. With the wedding season, festive celebrations, and the year-end travel rush just around the corner, this decision is designed to ease the burden on travellers while simultaneously boosting demand in the tourism and hospitality sectors.
The changes officially take effect from September 22, 2025, and are expected to make hotel stays as well as flight bookings noticeably more affordable.
Lower GST Rates on Hotels
One of the most significant aspects of the new tax overhaul relates to hotel stays. Previously, accommodation priced up to Rs 7,500 per night attracted a 12% GST with input tax credit (ITC). Under the new regime, that rate will be slashed to 5%, though hotels will not be able to claim ITC on these tariffs.
Here’s how the revised structure looks:
- Rooms priced below Rs 1,000 per night will continue to remain exempt from GST.
- Rooms priced between Rs 1,000 and Rs 7,500 per night, which account for the majority of mid-range and business travel bookings, will now fall under a 5% GST slab (down from 12%). This brings a significant cost saving for average travellers.
- Premium hotel rooms above Rs 7,500 per night remain unaffected and will continue to attract an 18% tax rate.
For leisure travellers, wedding planners, and corporate clients booking across cities, this could translate into tangible savings, especially in Tier-1 and Tier-2 metros where hotel room rates often hover around the Rs 4,000–6,000 mark. For instance, a hotel room priced at Rs 5,000 per night will now attract only Rs 250 as GST (at 5%), instead of Rs 600 earlier (at 12%). Over a week-long stay, this means a saving of nearly Rs 2,500 per room.
Industry experts believe this revision is strategically positioned to help India capture growing domestic tourism demand and to compete with Southeast Asian destinations, where hotel taxes are relatively lower.
Cheaper Flights Across Classes
The Council’s decision wasn’t limited to hotels; air travel has also been made more wallet-friendly. Here’s the new categorization:
- Economy class tickets will now carry a 5% GST, compared to the earlier 12%. For frequent flyers and holiday-goers, this change represents a major cost cut, and airlines expect it will also encourage more first-time flyers to opt for air travel over trains.
- Business class tickets have also seen a reduction, though to a lesser extent. They will now be charged at 12%, down from 18% previously. While still higher in absolute percentage compared to economy class, this adjustment lightens the tax load on premium travellers as well.
For example, an economy ticket priced at Rs 4,000 will now attract only Rs 200 as GST instead of Rs 480 earlier. A similar-priced business class ticket, previously taxed at Rs 720, will now incur Rs 480 in GST. Such direct price corrections are expected to stimulate higher demand for domestic flyers, especially during the upcoming peak travel season.
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What This Means for Travellers and the Industry
The timing of this tax restructuring could not be better. With weddings, Diwali, Christmas, and year-end vacations driving large-scale travel, the reduced GST rates will act as an incentive for families, business travellers, and millennials planning short leisure trips. Domestic tourism, which has rebounded strongly post-pandemic, is likely to receive a further boost, while inbound tourism may also become more competitive compared to international alternatives.
From an industry standpoint, airlines hope this measure will help improve flight occupancy rates, reduce the stress of seasonal fare hikes, and encourage more budget-conscious consumers to fly. For hotels, reduced upfront costs could lead to higher occupancy, especially in budget and mid-range segments catering to domestic holidaymakers and corporate clients.
However, there is one caveat. Hotels will no longer be able to claim input tax credit (ITC) against other expenses, which may affect operational margins. While the GST reduction will benefit end-consumers directly, hotel chains will need to adjust their pricing models to navigate loss of ITC benefits without compromising service quality.
The Bigger Picture
This move signals the government’s intent to push domestic consumption and strengthen India’s travel ecosystem, which is a major contributor to GDP and employment. Industry analysts see it as a step toward aligning taxation with global tourism-friendly policies, while also giving a seasonal push to consumer sentiment right before the peak holiday calendar.
For travellers, the message is straightforward: from September 22, both flights and hotels become cheaper, making travel more affordable across income groups. Whether it’s a luxury wedding destination, a last-minute festive trip to see family, or a business conference in another state, this GST revision puts money back in the consumer’s pocket while energizing one of the most dynamic sectors of the economy.
Source: NDTV
