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India Updates Consumption Tax Rules for Travel and Tourism

Hotel reception counter with printed bill and GST notice, illustrating India consumption tax and hotel GST changes for travelers.
by
5 min read

India will implement a simplified consumption tax regime on September 22, 2025, reshaping hotel pricing and clarifying airfare taxation. The GST Council's decisions cut GST on budget and mid-scale hotel rooms, keep economy-class air travel at a merit rate, and follow earlier 2025 changes to the TCS threshold on foreign remittances under the Liberalised Remittance Scheme. The combined effect points to modestly cheaper domestic trips, clearer invoicing, and fewer pricing surprises for travelers.

Key Points

  • Why it matters: Hotel rooms priced up to ₹7,500, about $90.00, will attract 5% GST, improving affordability.
  • Travel impact: Economy-class air tickets remain at 5% GST, while premium cabins are taxed at 18%.
  • What's next: CBIC rate notifications will implement the Council decisions, with industry adapting billing and IT systems.
  • Two primary GST slabs now guide most goods and services that touch travel.
  • Higher TCS thresholds ease some outbound tour and remittance cash-flow pressure.

Snapshot

From September 22, 2025, India's consumption tax changes directly touch hotel stays and passenger transportation. Hotel accommodation valued at ₹7,500 per room night or less will be taxed at 5% GST without input tax credit, down from 12%. Passenger transport by air remains at 5% for economy class and 18% for business or first class. These moves sit alongside February 2025 Union Budget measures that raised the annual TCS threshold on foreign remittances under LRS to ₹10 lakh, which can soften cash-flow strain for higher-spend outbound trips. Operators must update rate cards, PMS and CRS tax logic, and traveler-facing disclosures before the effective date.

Background

India introduced GST to replace a patchwork of indirect taxes, later tuning rates through periodic GST Council meetings. Hospitality historically faced multiple slabs and ITC conditions, which complicated pricing and procurement. The Council has pursued simplification by narrowing slabs and aligning "merit" services, including passenger transport, at 5% where appropriate. Hotels under the ₹7,500 threshold now align with that approach, while premium air cabins remain at a higher rate. Separately, the Union Budget 2025 raised the TCS threshold on LRS remittances to ₹10 lakh, affecting outbound tour package payments and other foreign spends. Together, these steps aim to stimulate domestic tourism, streamline compliance, and limit bill-shock for consumers.

Latest Developments

Hotel GST cut to 5% up to ₹7,500, without ITC

The headline change for travelers is a rate cut on hotel rooms priced at ₹7,500 per night or less, now taxed at 5% without input tax credit. Properties in the budget and mid-market tiers should be able to pass through lower tax, supporting sharper public rates around weekends and holidays. Hotels lose ITC at this band, so procurement-heavy operations will model whether savings offset credit loss. Above ₹7,500, prevailing higher slabs continue. Revenue managers should re-bucket inventory, refresh inclusions like breakfast, and ensure that bundled offers do not inadvertently push a room over the threshold after service charges.

Air travel GST clarified, economy at 5%, premium at 18%

Passenger transportation policy confirms economy-class air at 5% GST, while premium cabins are taxed at 18%. Unlike some ground transport categories, air travel does not offer an option to pay 18% with full ITC on economy tickets. Carriers and OTAs should verify fare-family mapping so ancillary bundles do not change the applicable tax. Corporate travel programs may see steady economy costs, with premium-cabin tax remaining materially higher. With airlines increasingly unbundling, accurate display of GST components at checkout will be critical for transparency and expense compliance.

Outbound spend relief, higher TCS thresholds from Budget 2025

Earlier this year, the Union Budget raised the threshold for Tax Collected at Source on remittances under LRS to ₹10 lakh per financial year. For travelers booking overseas tour packages or making other qualifying foreign payments, the higher threshold can delay or reduce TCS cash outflows. The specific TCS rate depends on purpose and amount, so tour operators and payment providers must keep purpose codes accurate. Combined with the hotel GST cut, outbound travelers may find it easier to plan mixed domestic-plus-international itineraries without unexpected tax friction at the payment stage.

Analysis

For India's hospitality sector, the 5% GST rate up to ₹7,500 should stimulate demand in the exact price bands where domestic travel is most elastic. Mid-market and leisure-friendly city hotels can sharpen weekend packages under the threshold, then drive ancillary revenue from dining and experiences. The absence of ITC will challenge hotels with higher input-tax footprints, particularly full-service properties. Expect some operators to unbundle inclusions or rework meal plan pricing to keep base room rates within the 5% band.

Air travel taxation remains familiar to consumers, which avoids disruption during a busy festival season. The split between 5% for economy and 18% for premium cabins preserves a progressive structure but raises stakes for fare-family design. Airlines should audit ancillaries to ensure they do not inadvertently reclassify a fare's tax position. Clear tax line items at booking and on e-invoices will reduce disputes with corporate accounts payable teams.

On outbound spend, the higher TCS threshold improves liquidity for affluent households and small businesses paying for overseas tours or education-adjacent trips. Still, TCS is not a cost if claimed correctly, so the real benefit depends on traveler follow-through at filing. Overall, the package of changes supports volume growth, cleaner displays, and fewer pricing surprises, especially in the domestic hotel segment that anchors India's tourism recovery.

Final Thoughts

India's consumption tax reset sends a friendly signal to travelers and operators, with a targeted hotel GST cut, steady economy-air rates, and earlier TCS relief on remittances. The winners will be hotels and OTAs that proactively reprice to sit just below the ₹7,500 line, explain tax clearly, and simplify checkout. With systems updated and offers tuned, the market is positioned for stronger shoulder-season demand and more transparent pricing under the new India consumption tax rules.

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