Hotel stays turn cheaper as GST cuts kick in, but chains caution on ITC loss

Hotel rooms get cheaper.

Hotel stays are getting lighter on the pocket as hospitality chains begin passing on the recent GST (Goods and Services Tax) cuts to customers. A drop in room tariffs is giving travellers a festive season boost. However, industry players have cautioned that the inability to claim Input Tax Credit (ITC) could squeeze margins and pose long-term challenges for the sector.

By how much have rates come down?

ibis has already aligned its pricing to reflect the revised GST slabs, Animesh Kumar, Head of Commercial at ibis & ibis Styles India, told Moneycontrol. He added that guests will see more competitive room tariffs across their hotels.

Dr Vikram Kamat, Chairman and Managing Director of VITSKAMATS Group, pointed out that  rates have come down by around 5-7 percent on account of reduced GST.

Hotel Association of India (HAI) estimates tax relief for travellers to the extent of 7 percent on room rates, with a maximum of Rs 525 per room per night.

Rubystone Hospitality is also fully passing the GST reduction to its customers.

The GST reduction from 12 percent to 5 percent for room tariffs at Rs 7,500 and below means our guests save money directly, and it is important to show it in our pricing, said Sandeep Singh, Founder, Rubystone Hospitality.

"Today's guests are more price-sensitive, and being straightforward in bills helps build trust. We want the guests to see in their bills that the GST cut is fully transferred , so they can see what tax they saved with their stay," he said.

Wyndham Hotels & Resorts is also fully passing on the benefit, said Rahool Macarius, Market Managing Director, Eurasia.

"The timing of this reform is highly relevant. With the festive and wedding season driving peak demand, the reduced GST has already started fueling positive sentiment and momentum in bookings. We expect this to accelerate in the coming weeks, particularly in the mid-market segment where affordability drives travel decisions," Macarius said.

What will the new hotel room bill look like?

Previously, a room priced at Rs 7,500 was charged 12 percent GST of Rs 900. The total for a day's hotel stay would cost a guest Rs 8,400. Under the new GST rate of 5 percent, the tax comes to Rs 375 and the total bill now comes to about Rs 7,875.

Are more guests checking in due to GST cuts?

Rubystone Hospitality's Singh said that their decision to pass on the lower GST benefit is in line with their strategy to increase bookings during the festive season, when travel demand is high.

"We have seen a rise in enquiries and confirmed bookings, suggesting that even small adjustments in tax can influence customer decisions. We expect stronger occupancy during the holiday season and with the GST reduction, guests will see more value for their dollar, which will lead to more bookings," he said.

In addition to affordability, the tax reduction is generating chatter in social media circles and booking platforms, prompting people to think about a stay that they may have otherwise deferred, Singh added. "Families and groups ready to begin planning parties for celebratory purposes will take advantage of the savings, typically for more rooms. Overall, the GST cut seems to be stimulating increased bookings and improved revenue during an already strong seasonal period."

With travel sentiment already upbeat during the festive season, passing on lower GST benefits will only accelerate bookings and boost occupancy across the industry, ibis Kumar said.

What is worrying some hoteliers despite the GST cut?

Tejas Parulekar, Founder of SaffronStays, pointed out that the GST cut has been announced without any input tax credits, no respite in reverse charge mechanisms and compounded by an inverted duty structure.

What is an inverted duty structure?

An inverted duty structure arises when the tax rate on inputs (raw materials or services used in production) is higher than the tax rate on the finished product.

For instance, if a manufacturer pays 18 percent GST on raw materials but the final product is taxed at 12 percent GST, the business pays more tax upfront on inputs than it collects on the output.

How will loss of ITC affect hotel business?

Due to no ITC, there may not be any difference in the eventual pricing to an end customer, said Parulekar. "No ITC may actually result in an increase in pricing as there is no input credit available."

She pointed out that one aspect is creating confusion, which is that if some hotel rooms are charged at 5 percent, food & beverages (F&B) services might still attract 18 percent for such specified premises. "So, the entire industry is confused and worried about complicated processes in the backend."

"Certain industries have been allowed input credit even at the 5 percent slab and this needs to be extended to the hospitality industry as well. Else, we may actually see prices rise instead of falling," SaffronStays' Parulekar said.

Kamat said that since they are moving to a non-ITC system, they need to assess the impact from next month.

HAI also said that no ITC will act as a disincentive for much-needed investments and expansion in the sector.

"While HAI member-hotels remain committed to delivering the highest standards of service to their guests, to ensure long-term sustainable growth of the sector, GST reforms must take a holistic, business-focused approach that retains ITC benefits. This will enable the sector to attract and drive large-scale investment, create employment, and play its rightful role in advancing India Vision 2047," HAI said.

Will more bookings offset ITC loss impact?

"No, ITC will impact the internal costs from an accounting perspective, but given the nature of room inventory, we would make it up, based on increased occupancy and increased room sales, especially during the holiday season," Rubystone Hospitality's Singh said.

He added that the lower GST promotes more bookings, which eventually increases revenue overall, even if room revenue is marginally affected due to the lower margin per room. "Increased customer satisfaction can lead to higher repeat stays and brand loyalty, which is often more valuable than any simple accounting margin loss," he added.

For a chain like ibis, the incremental rise in occupancy can offset the ITC gap over time, Kumar said.