Reduction in GST & its Effect on Hospitality Industry

The reduction in GST on hotel rooms costing less than Rs 7,500 per day - from 12% to 5% - has created mixed feelings of joy and wait-and-watch within the industry, which is happy at the news of reduction of GST but is cautious, with the government simultaneously announcing the withdrawal of Input Tax Credit (ITC). Industry sources believe that withdrawal of (ITC) will negatively affect the Indian hotel industry by increasing operational costs, particularly for budget and mid-scale hotels, which may lead to higher consumer prices and reduced competitiveness. Ashok Malkani presents an overview of the reduction of GST and the simultaneous withdrawal of ITC on the hospitality industry.

- Ashok Malkani

The announcement of the reduced rate of GST on hotel rooms, costing less than Rs. 7,500 per day, from September 22, 2025, is believed to be beneficial for travellers. According to the Hotel Association of India, the reduction in tax on hotel accommodation priced at Rs 7,500 and below will provide relief to travellers to the extent of 7 per cent on the room rate with the maximum of Rs 525 per room per night. Similarly, travellers will also gain, on the GST on food menus.

Rahool Macarius, Market Managing Director, Eurasia, at Wyndham Hotels & Resorts, which owns brands like Ramada, believes, "The impact will be most significant in the mid-market space where India's expanding middle class is driving demand for high quality yet affordable stays. By improving affordability, the revised slabs also unlock tremendous potential in Tier 2 and Tier 3 cities where value conscious travellers are increasingly fuelling new demand."

Piyush Rathore, Director of Sales, Sheraton Grand Palace Indore states, "We welcome the government's decision to reduce the GST on hotel room tariffs. It's a progressive move that demonstrates strong support for the hospitality and tourism industry. This step will make hotel stays more affordable for guests and enhance India's competitiveness as a travel destination, both domestically and internationally. It's a positive development for Tier-II cities like Indore, where tourism and business travel are steadily growing."

He adds, "We anticipate a positive impact on occupancy. The reduced GST will make travel more cost-effective, especially for domestic leisure travellers and corporate guests who are increasingly conscious of value and budget alignment. Additionally, this may also encourage MICE (Meetings, Incentives, Conferences and Events) bookings, which form a key segment for us at Sheraton Grand Palace Indore."