The Goods and Services Tax (GST) Council has recently approved significant changes to tax rates on hotels and air travel, set to take effect on September 22, 2025. These revisions, made during the council's 56th meeting on September 3, 2025, aim to make travel more affordable, particularly ahead of the festive and wedding season, which typically sees increased consumer spending.

Reduced GST on Hotel Accommodations

One of the most impactful changes is the reduction in GST rates for hotel stays. Rooms priced up to ₹7,500 per night will now be taxed at 5% without input tax credit (ITC), a significant decrease from the previous 12% with ITC. This change is expected to primarily benefit budget and mid-market travelers. Rooms priced below ₹1,000 per night will remain GST-free. For rooms priced between ₹1,000 and ₹7,500 per night, the GST rate will be 12%, reduced from the previous 18%. Premium hotels with tariffs above ₹7,500 will continue to attract an 18% GST.

Industry experts anticipate that these revised rates will provide a boost to the hospitality sector, which has been recovering from disruptions caused by the pandemic. Cheaper tariffs may encourage more frequent weekend getaways, business travel, and extended leisure stays. The move is also expected to make Indian hotels more competitive compared to Southeast Asian destinations, where room taxes are often lower. The Federation of Hotel & Restaurant Associations of India (FHRAI) believes this reform will directly boost tourism demand, increase occupancy, and encourage more spending across the hospitality value chain.

GST on Air Travel

Air travel will also see changes in GST rates. Economy class tickets will now attract a 5% GST, down from 12%. Business class tickets will be taxed at 12%, compared to the previous 18%. These changes aim to make air travel more affordable and reduce costs for business travelers. The reduction in GST on economy class tickets is expected to benefit low-cost carriers, which are already popular in India's aviation market, as travel demand remains price-sensitive.

Impact on the Tourism Sector

The GST Council's decision is expected to have a positive impact on the tourism and hospitality sector. Lower taxes on hotels and flights are likely to improve consumer sentiment, making travel more attractive and affordable. The changes are also expected to support growth in the services sector, particularly tourism, which was among the worst hit during the pandemic. By making travel more affordable, the government hopes to encourage more domestic and international tourists to visit India.

Other Key Changes

In addition to the changes in GST rates for hotels and air travel, the GST Council has also approved changes to tax rates on a variety of other goods and services. The council has approved the rate overhaul by limiting slabs to 5 per cent and 18 per cent, as the Centre seeks to boost domestic spending and cushion the economic blow of the US tariffs imposed on Indian goods. Many everyday food items will see a tax reduction from 18% to 5%. The GST Council has also decided to reduce tax rates on several dairy products and to make Ultra High Temperature (UHT) milk and paneer completely tax-free by reducing the GST from 5 per cent to zero.

Overall, the GST Council's recent decisions are expected to make travel more affordable and boost the tourism sector in India. The revised rates, set to take effect on September 22, 2025, are expected to benefit budget and mid-market travelers, as well as the hospitality industry as a whole.