In a pivotal move, the GST Council, chaired by Union Finance Minister Nirmala Sitharaman, has approved structural reforms aimed at simplifying the tax regime and infusing new vigour into several key sectors — none more so than tourism and hospitality.
The reduction of GST on mid and upper-mid segment hotel accommodations from 12% to 5% is a game-changer. This long-awaited reform is expected to spur domestic travel, boost occupancy, and make Indian destinations more competitive against other Asian tourism hubs. At a time when international destinations are aggressively courting Indian travellers, this change is both timely and strategic.
By easing the tax burden, domestic tourism now has the room it needs to grow. Lower travel costs are expected to drive greater footfall across a wider range of destinations — not just popular hotspots, but emerging and developing locales as well — injecting fresh energy into local economies. Rising demand is likely to spur infrastructure investment and lead to gig hiring across hospitality, transport, and allied services. If the economic logic holds, the government may see tax collections remain stable or even rise, as higher volumes offset the impact of rate cuts.
An analysis from a reputed credit rating agency highlighted the problem starkly. In a five-night stay comparison at a four-star hotel between Mumbai–Goa and Mumbai–Bangkok, hotel costs in Goa accounted for 80% of total spend, compared to just 60% in Bangkok — despite near-identical overall trip costs. In essence, cheaper domestic flights were being offset by disproportionately expensive hotel stays. This tax correction directly addresses that imbalance, one the industry has flagged for years.
India’s diverse destinations — Ladakh, Andaman, Kerala, Rajasthan — can rival global hotspots. The reform gives them a much-needed boost. However, removing Input Tax Credit (ITC) for properties below INR 7,500 may hinder quality offerings in the budget segment.
On a positive note, retaining the 5% GST on economy class fares is a welcome move that keeps air travel within reach for many. While the hike to 18% for premium fares has drawn criticism, it’s worth noting that change often comes in phases.
It is now time to seize this momentum — by launching an Incredible India 2.0 campaign that positions tourism as a cornerstone of India’s job and growth story, to realise the sector’s full potential.
