The Goods and Services Tax (GST) Council has increased the levy on non-economy air travel from 12% to 18%, a move expected to make premium economy, business, and first-class fares more expensive. While economy class fares remain unchanged to ensure affordability, the higher tax burden on upper classes has sparked concern among airlines and online travel agents.
Industry insiders revealed that ahead of the announcement, two major airlines had requested a uniform GST of 5% across all ticket categories. Their plea was overlooked, raising fears that the decision will reduce demand for premium cabins and hurt airline revenues, especially at a time when the aviation sector is still recovering from crises.
Former TAFI president Ajay Prakash criticized the hike, calling it poorly timed during a “sensitive phase” for Indian aviation. He warned that the move would discourage travelers from booking non-economy seats, contradicting the government’s push to modernize aviation with larger aircraft and upgraded infrastructure.
International Air Transport Association (IATA) termed the decision “disappointing.” Regional VP Sheldon Hee highlighted that India’s aviation growth story, supported by record aircraft orders and expanding infrastructure, could be undermined by policies that dampen premium travel demand. He argued that taxing premium travelers—who often determine route viability—is counterproductive to sustaining airline profitability.
Despite criticism, some analysts believe the impact may be limited. ICRA’s Jitin Makkar suggested that business-class demand, which has low price sensitivity, may hold steady, though some passengers could downgrade to economy. At the same time, by keeping economy fares stable, the government has ensured accessibility for mass travelers while boosting transparency and stability in the sector.
DreamFolks CMD Liberatha Kalath welcomed the clarity, stating that passengers booking before the new rates take effect will benefit from the earlier tax regime, ensuring fairness. She added that increased travel flow from affordable economy fares would also uplift allied sectors like hospitality, tourism, and restaurants, creating a broader economic ripple effect.
