Hotels welcome GST cut but were hoping for more, some worry about impact on profits

Mixed reviews for GST cut on otel room tarrifs.

The Goods and Services Tax reform for the hotel sector has been received with mixed reviews, after the Centre lowered the GST on hotel room rates below Rs 7,500 to 5 percent without Input Tax Credit (ITC) from 12 percent, as hoteliers were hopeful of more relief from the Centre.

One industry player pointed out that the Rs 7,500 bracket is four years old, and the industry has been pushing for the slab to be increased to a more realistic range of Rs 10,000-12,000, Ajay K Bakaya, Chairman, Sarovar Hotels & Director, Louvre Hotels India said.

The GST rate cut promises to make hotels affordable, but keeping in mind inflation, the threshold of Rs 7,500 should have been increased to Rs 15,000 to cover a wider network of travellers, said Ravi Gosain, President of the Indian Association of Tour Operators (IATO).

No Dramatic Impact

Ravi Gosain added that while Sarovar will pass on 100 percent GST benefits to customers, the hotel sector may not see a dramatic impact of the tax reforms. "It won't push up occupancy dramatically, but it will push guest satisfaction levels as the entire GST reduction benefit will be passed on to the guests." Gosain expects a 5 percent growth in occupancy levels in hotels on the back of GST cuts that could increase spending power.

Aditya Sanghi, CEO, Hotelogix, a hospitality management software company said that the GST cut is a relief for guests but budget hotels may not benefit from this move.

At first glance, the tax cut appears to be a win for budget-conscious travellers and a boost for domestic tourism. But for thousands of budget and mid-market hotels that form the backbone of India’s hospitality ecosystem, it could negatively impact their profitability, Aditya Sanghi added.

Higher Costs

According to Sanghi, lower GST will grow occupancy but will shrink profitability.

"Guests will now pay less tax on their stays. That’s a welcome change in a price-sensitive market. But for hotels, the inability to claim ITC on a wide range of operational expenses could erode profitability even as occupancy rises. It significantly hampers hotel operators from offsetting their operational costs," Sanghi said.

Under the previous GST structure, hotels benefited by claiming ITC, as it allowed them to reclaim taxes on various inputs essential for their operations from purchasing linens and toiletries to covering OTA (online travel aggregator) commissions and implementing SaaS (Software as a Service) platforms like Hotel PMS (Property Management System). "However, now, with the 5 percent rate and no ITC, every rupee spent on these essentials becomes a sunk cost," Hotelogix CEO added.

Sharing similar sentiments, Tejas Parulekar, Founder, SaffronStays - a network of luxury vacation homes - said the absence of input credits may actually drive up the costs as many players will have to absorb it taxes and price it in the tariff.

Hotel Association of India (HAI) also said that the removal of ITC may prove detrimental for hotel companies operating in the segment and may act as a disincentive for much needed investment and expansion in the category.

On the other hand, hotels with tariffs above Rs 7,500 continue to operate under the 18 percent GST slab with full ITC benefits. "This creates a competitive imbalance. Budget hotels may attract more guests due to lower prices, but they will struggle to maintain profitability. Meanwhile, premium hotels retain their tax shields but may lose price-sensitive customers. This tiered system will fragment the industry," Sanghi added.

He also said that the Indian hotel industry has been advocating for a uniform GST rate with ITC - an approach already employed in several countries to nurture the hotel sector.

Timely Move

Many hoteliers are calling this a timely move due to the revised rates coming into effect ahead of the festive season. The timing could not have been better, as this is one of the busiest periods for travel in India, said Animesh Kumar, Head of Commercial at ibis & ibis Styles India, who expects properties like ibis Styles Goa Vagator to see stronger traction from value-driven travellers.

The industry anticipates a positive demand growth of around 7-10 percent, Kumar added.

"By reducing the tax burden on mid-scale and upper mid-scale hotels, the government has unlocked new opportunities for stronger domestic travel, weekend leisure breaks, and business mobility, factors that are critical to the hospitality sector’s growth," said Nikhil Sharma, Managing Director & COO, South Asia, Radisson Hotel Group.

Coming ahead of the busy tourism season, the tax relief will lead to a spike in gig hiring, said Rajiv Mehra, General Secretary, Federation of Associations in Indian Tourism and Hospitality (FAITH).

Tourism already contributes nearly 5 percent to India’s GDP growth, and with continued reforms and new formats, it has the potential to cross 6 percent in the coming years, said Ritwik Khare, Founder & CEO of ELIVAAS that offers villas, homestays.

He added that new segments like villas, apartments and suites are emerging as powerful drivers, creating fresh revenue pools and jobs inside India, beyond the traditional hotel hubs.

For hotel chains, the revised GST structure offers dual benefits of enhanced competitiveness in pricing and greater operational efficiency, said Jyoti Mayal, chairperson of Tourism and Hospitality Skill Council (THSC). "By reducing the compliance burden and aligning tariffs with market demand, it enables chains to attract a wider customer base. This is particularly important for expanding presence in Tier-II and Tier-III markets," she added.

The cut in GST on hotel rooms priced below Rs 7,500 will make stays more affordable for a large share of Indian travellers, reinforcing demand in the domestic market.” Rajesh Magow, Co-Founder and Group CEO, MakeMyTrip.

However, Ankit Pathak, Chief Finance Officer, Ebix Travels said the upward revision for non-economy tickets may affect premium travel costs slightly. The overall framework, however, reflects a balanced approach to making travel more accessible while supporting industry, he said.