Team SKM,
The Indian government has introduced a major move to encourage domestic tourism by lowering the GST on hotel rooms priced at ₹7,500 or less. Previously, these rooms attracted a 12% GST with ITC claim but now the rate has been cut to just 5%, although without input tax credit (ITC). This change is expected to make travel more affordable, increase occupancy for budget and mid-range hotels, and boost domestic tourism across the country.
How Hotels Are Adjusting
For budget and mid-range hotels, this GST cut is both an opportunity and a challenge. On the positive side, hotels can attract more customers by passing the full benefit of the lower GST to travelers, making their rooms more appealing. However, since ITC is no longer available for this slab, hotels cannot offset the tax paid on supplies and services, slightly increasing their operational costs.
Many hotels are likely to adopt a balanced approach: passing part of the benefit to customers while maintaining some margin to cover expenses. Luxury hotels with room rates above ₹7,500 are not directly affected, but they may offer special promotions or deals to remain competitive and encourage bookings. Overall, the goal for hotels is to maximize occupancy while managing margins carefully.
Pricing Before and After GST Cut
To understand the impact, consider this example: A ₹7,500 room earlier attracted 12% GST, making the total ₹8,400. With the new 5% rate, the total drops to ₹7,875 — a saving of ₹525 per night for customers. Similarly, a ₹6,000 room now costs ₹6,300 instead of ₹6,720, saving ₹420. These reductions make budget and mid-range stays significantly more attractive, encouraging more domestic travel and weekend trips.
Benefits for Travelers
- Lower Costs: Rooms are now more affordable for families and solo travelers alike.
- Better Access: More people can enjoy stays in quality hotels without overspending.
- Tourism Boost: With increased bookings, regional tourist destinations and mid-range hotels get a much-needed boost, creating more economic activity.
Challenges for Hotels
While travelers gain, hotels face the challenge of balancing pricing and profitability. Without ITC, operational costs increase slightly, so hotels must strategically set rates to attract customers while maintaining revenue. High occupancy rates can help offset these costs, but careful planning is crucial.
Final Thought
This GST cut is an exciting development for travelers seeking affordable stays in India. With more budget-friendly options available, domestic tourism is likely to surge, giving hotels and local economies a welcome lift. For travelers, this is the perfect time to explore, book, and enjoy India without straining the wallet.