Explained: New GST Rates And What They Mean For Travel In India

Every traveller knows the small arithmetic of a holiday. A thousand rupees saved on a flight might mean one more meal by the sea. A lower hotel bill could stretch a stay by an extra night. India’s latest GST reforms, effective September 22, promise to make those calculations easier on the pocket. For the first time since GST was introduced in 2017, travel, tourism, and hospitality stand to gain significantly.

“The rationalisation of GST slabs is a welcome move to stimulate the Indian economy by boosting discretionary income and fuelling consumption across sectors. For travel and tourism, the cut in GST on hotel rooms priced below ₹7,500 will make stays more affordable for a large share of Indian travellers, reinforcing demand in the domestic market,” said Rajesh Magow, Co-Founder and Group CEO, MakeMyTrip.

Flying Becomes Friendlier

Taxes have long weighed down air travel. Under the revamp, economy tickets now attract 5% GST, down from 12%. Business class fares dropped to 12% from 18%. Aviation insiders expect this to directly translate into lower fares and higher domestic traffic, especially during the festive and wedding season when families fly in large numbers.

Ravi Gosain, President of the Indian Association of Tour Operators (IATO), said, "The high-end segment will hardly change behaviour. Wealthy individuals and corporate travellers are not price-sensitive. But for the regular flyer, economy tickets are becoming cheaper and open to travel to a much wider audience."

Private jets and business charters also saw reductions. Gosain pointed out this largely affects a niche: "The high-end travellers may consider switching to economy, but the vast majority will continue as before. This reform is designed more for the middle class than luxury flyers."

Hotels And The Mid-Market Push

If flights make the first impression of a trip, hotels shape the stay. Here, the changes are sharper. Rooms under ₹1,000 a night remained exempt, but the big shift is for the mid-market: rooms between ₹1,000 and ₹7,500 now attract just 5% GST, compared to 12–18% earlier. Premium rooms above ₹7,500 stay at 18%.

"This is a pure advantage to domestic tourists and budget-conscious foreigners," Gosain explained. "Earlier, a ₹7,000 room attracted ₹840 as GST. Now it's only ₹350—a saving of almost ₹500 per night. For a family staying three nights, that's a clear ₹1,500 saved. Multiply that across trips, and the difference is substantial."

Meanwhile, Sahil Pandita, CEO of Promiller (a hotel management consultancy firm), called it "a very clear 7% swing." He said: "Earlier, hotels were charging 12% GST on rooms below ₹7,500; now they only need to charge 5%. That 7% difference either goes into the hotel's pocket as extra yield or gets passed on to the guest as a visible discount. Some will take it as margin, and some will use it to drive occupancy. Both approaches will exist."

Pandita also noted the nuance around input credits. Earlier, hotels paying 12% GST could recover some of that tax by claiming credits on expenses like rent, cleaning services, or online booking commissions. With the new 5% rate, they can't claim these credits anymore. However, because the overall tax charged to guests is now lower and the system is easier to manage, almost all hotels still benefit.

For international visitors comparing destinations, Gosain added, "Mid-range hotels form the backbone of inbound tourism. With reduced GST, India has become more competitive vis-à-vis Southeast Asia, which traditionally had lower taxes. This aligns India with worldwide price trends and enhances our visibility."

Dining Out Gets Cheaper

Restaurants are also seeing major relief, with a uniform 5% GST applied across standalone eateries and hotel restaurants outside luxury properties. Earlier, diners faced rates as high as 18%.

Vikrant Batra, Co-Founder of Café Delhi Heights, said his team has already started preparing: "We are closely studying the implications of the proposed GST revisions, especially the shift to the 5% slab for standalone restaurants. Once we've assessed the finer details, we'll adapt our strategies regarding menu engineering, pricing optimisation, or internal efficiencies. The goal is to stay compliant while offering value to our guests."

He also highlighted a missed opportunity: "There were high expectations that ITC would be reinstated in this GST review. The absence of any movement is surprising, given how critical ITC is to maintaining cost efficiency and competitiveness. A mechanism that allows for ITC would go a long way in supporting sustainable growth for multi-location chains."

[For the unacquainted, ITC refers to the GST that a registered business can claim back on goods or services purchased for business use.]

Meanwhile, Pandita added a clarifying note: "Let's keep it straight. GST applies to food and non-alcoholic beverages only. Alcohol sits outside GST, under state VAT and excise. Guests don't order more food because GST is 5%. The real effect is for operators: procurement costs fall, and even without ITC, margins improve. So this reform strengthens F&B businesses, even if diners don't notice it immediately."

Tour Packages And The Bigger Picture

One grey area was tour packages, where cascading taxes complicated pricing. Operators bundle hotels, transport, and activities, and while cheaper hotels helped, the lack of ITC continued to eat into margins.

"The benefit is clearer for standalone hotel stays," Gosain admitted. "In comprehensive packages, savings are partially neutralised. We have requested the government to reconsider ITC provisions so operators can pass on more benefits."

Pandita added that keeping premium hotels at 18% GST was fair: "If someone is paying ₹20–30k a night, GST doesn't change their mind. That segment is dominated by corporates and five-star travellers who choose based on service and reliability. Keeping 18% here while reducing mid-market rates is smart. It protects revenue where affordability isn't the issue, and gives relief where it drives volume."

He stressed simplification was as important as the rate cuts: "Earlier, compliance was a headache—reconciling credits, chasing accountants, worrying about mismatches. Now it's simpler: you look at what you earned, calculate GST, and pay it. For small and mid hotels or standalone restaurants, that's a huge relief."

Looking forward, Pandita added a cautionary note: "From here, the bottleneck isn't GST, it's the industry itself. Too many hotels have been built too fast, with uneven quality. The passion side of hospitality is being overtaken by investment frenzy. First, we must fix ourselves, then ask for more policy support. Right now, the reforms are fair and balanced. The opportunity is there; it's up to us to execute responsibly.

FAQs︱New GST Rates

Q1: What are the new GST rates for flights in India?
A1: Economy flight tickets now attract 5% GST, down from 12%, while business class fares have been reduced from 18% to 12%, making air travel more affordable for domestic flyers.

Q2: How do the new GST rates affect hotel stays?
A2: Hotels priced between ₹1,000 and ₹7,500 now attract just 5% GST instead of the earlier 12–18%. Rooms under ₹1,000 remain exempt, while luxury hotels above ₹7,500 continue at 18%.

Q3: Will dining out become cheaper under the revised GST?
A3: Yes, restaurants outside luxury hotels now have a flat 5% GST, compared to previous rates as high as 18%. This makes eating out more affordable for travellers.

Q4: Do the new GST reforms benefit international tourists too?
A4: Absolutely. Reduced GST on mid-range hotels and dining brings India closer to global price trends, making the country more competitive with destinations like Southeast Asia.

Q5: Are tour packages covered under the new GST benefits?
A5: While cheaper hotel rates help, tour packages remain complex due to limited input tax credit (ITC) provisions. Operators say benefits are clearer for standalone bookings than bundled packages.