GST rate cut proves to be a mixed bag for travel, hospitality sector

Hotel rooms under ₹7,500 move to 5% slab, will bolster midscale segment

Bringing hotel rooms priced under Rs 7,500 a night into the 5 per cent slab (without input tax credit benefits) will further provide impetus to travel, helping the country’s tourism and hospitality sector, say industry executives.

 

The GST Council on Wednesday approved a two-slab structure, removing the 12 per cent and 28 per cent slabs. Hotel rooms priced over Rs 7,500 a night continue to remain in the 18 per cent slab, but below this level, the tax rate has been brought down to 5 per cent from 12 per cent.

 

“The structural reforms, including the reduction of the number of slabs, were a need of the hour and are welcome. The rate on hotel accommodation priced at Rs 7,500 and below, from 12 per cent to 5 per cent, may provide some relief only to the travellers,” said the Hotel Association of India in a media note.

 

“The rationalisation is a welcome move that will act as a stimulus to the Indian economy by boosting discretionary income and fuelling consumption across sectors. For travel and tourism, 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,” said Rajesh Magow, co-founder and group chief executive officer (CEO), MakeMyTrip.

 

The Indian tourism and hospitality sector has been witnessing sustained robust domestic demand since the pandemic. This is expected to rise further as the midscale segment – where brands like IHCL’s Ginger, Hilton’s Hampton, and Treebo’s Medallio operate – will be positively impacted by the rate cuts.

 

The midscale segment is the largest of all branded room inventory in the country, making up 33 per cent of the entire 200,000 branded room inventory in 2024. This is expected to go up to 34 per cent by 2030, with 300,000 branded rooms, hospitality consultancy firm Hotelivate said earlier.

 

“With the Indian middle-class diaspora rapidly on the rise, hospitality brands are deepening their footprint in the mid-market sector, and with the rationalisation of the tax structure, hotel stays will become far more affordable for a wider range of travellers. This decision will only further strengthen our plans to offer quality and affordable accommodations to travellers across India,” said Zubin Saxena, senior vice president and regional head, South Asia, Hilton Hotels.

 

Not just the midscale segment, the move will create a more supportive environment for hotels beyond the metro cities, pointed out Sudeep Jain, managing director, South West Asia at IHG (InterContinental Hotel Group) Hotels and Resorts.

 

For Treebo Hospitality Ventures, with a majority hotel portfolio under Rs 7,500, the rate cuts will help offer services at reduced prices, said co-founder and CEO Sidharth Gupta, adding that the new policy of no ITC will also help it reduce the administrative overhead of copious reconciliations and follow-ups in the finance function.

 

“The government has extended an early Diwali gift to Indian consumers, which will boost demand as hotels and homestays will pass on the benefit to travellers. Although what remains unclear is whether accounting will get more complex to administer, with respect to availing ITC,” said Amit Damani, co-founder of villa rental firm StayVista.

 

“We estimate that it will be net positive for the government, as total tax collection will be equal to or even higher as demand gets boosted,” said Rajiv Mehra, general secretary, Federation of Associations in Indian Tourism and Hospitality (FAITH), adding that, coming on the heels of peak tourism, the rate cuts will improve the prospects of the tourism and hospitality sector and spike gig hiring.

 

However, from an operator’s perspective, the removal of input tax credit (ITC) can be detrimental, and even prompt players to raise room tariffs, said executives.

 

“The removal of ITC may, in fact, prove detrimental for hotel companies operating in the segment and may act as a disincentive for much-needed investment and expansion in the category. The full impact on hotel operators will depend on the effects of the ITC reduction, which experts will need to assess further,” stated HAI.

 

While welcoming the move, Ajay K Bakaya, chairman, Sarovar Hotels and director, Louvre Hotels India, noted that the price threshold of Rs 7,500 should have been increased to help the industry.

 

“The move comes right before the peak season and disturbances marked by geopolitical tensions and weather conditions, so it will definitely help the economy and midscale brands. However, the government should have revised the four-year-old Rs 7,500 threshold to at least Rs 12,000 to have a wider, larger impact on the sector,” he said.

 

Speaking about the removal of ITC, Ravi Gosain, president of the Indian Association of Tour Operators (IATO), said the move will create a problem for tour operators that bundle hotel accommodation with other services.

 

“It will increase the cascading effect of taxes. While the reduction in the headline rate improves affordability from a customer's perspective, industry stakeholders would have preferred a structure that allowed for ITC to ensure uninterrupted credit flow,” he noted, requesting a re-examination of ITC provisions to make the sector more competitive internationally.

 

Speaking about the inclusion of breakfast in rooms under the Rs 7,500 category, executives said the decision will depend on individual hotel operators.