GST on Hotel Rooms Cut to 5%, But Prices Remain Unchanged

Travellers expected lighter bills after the recent GST reduction on hotel rooms, but many are reporting little to no relief. Despite the tax cut from 12–18% to 5% for rooms priced below ₹7,500, tariffs for mid-market and budget hotels have largely remained the same.

Why Prices Haven’t Dropped?

The primary reason for the unchanged rates is the removal of Input Tax Credit (ITC) for the lower GST slab. Previously, hotels and online travel agencies (OTAs) could claim ITC on bulk bookings and input costs, allowing them to offset GST paid on key services and pass the savings to consumers. With ITC now unavailable, the additional tax burden is absorbed by hotels, preventing a reduction in room prices.

This change revives the cascading effect that GST initially aimed to eliminate, squeezing profit margins and complicating pricing strategies for budget and mid-market hotels. Operating costs, including rent, utilities, outsourced services, and capital expenditure, now include non-creditable GST, which hotels must bear themselves.

Impact on Online Travel Agencies

OTAs have raised concerns with the Central Board of Indirect Taxes and Customs (CBIC), seeking clarity on the revised rates. Without ITC, online platforms find it harder to offer discounted pricing on hotel bookings. The mid-market and budget segments, which form the backbone of online bookings, are particularly affected.

For travellers, this means the GST reduction does not automatically translate into lower prices. A room previously priced at ₹6,500 may still cost the same, as hotels absorb additional GST costs instead of passing savings on to customers.

Challenges for the Hotel Industry

The hotel sector has also highlighted the financial strain caused by non-creditable GST. Mid-tier hotels face higher operating expenses and reduced affordability, which could impact investment and expansion plans. For example, refurbishment projects can attract substantial non-creditable GST, placing pressure on liquidity and long-term financial stability.

Potential Solutions

The government now faces a choice between maintaining the low GST rate without ITC or restoring ITC to prevent cascading costs. Industry bodies have proposed solutions such as restoring ITC for rooms priced under ₹7,500, allowing hotels to opt for 18% GST with ITC, and recognising hospitality as infrastructure to ease compliance and approvals.

Read more: Lemon Tree Hotels Announces Opening of New Premier Property in Navi Mumbai

Conclusion

While the GST cut was intended to reduce costs for travellers, the removal of Input Tax Credit (ITC) has offset these benefits. Mid-market and budget hotels continue to face non-creditable tax burdens, keeping prices steady. 

For now, travellers are unlikely to see immediate relief, and the hotel sector continues to seek reforms to balance taxation, pricing, and investment incentives.

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