India's recent overhaul of its Goods and Services Tax (GST) structure is set to make budget hotel stays more affordable, potentially boosting domestic travel.

Effective from September 22, 2025, the revised tax rates aim to simplify the tax system and stimulate economic activity in the tourism sector.

Reduced GST on budget hotel rooms

The GST Council has approved a reduction in the tax rate for hotel rooms priced up to ₹7,500 per night (approximately $85 or £63) from 12% to 5%.

However, this new rate will not allow for the Input Tax Credit (ITC). Rooms priced below ₹1,000 per night remain exempt from GST. This change is expected to directly lower the cost of accommodations for budget-conscious travellers.

The revised GST framework introduces a two-tier system with 5% and 18% tax slabs, replacing the previous complex multi-tier structure. This simplification is expected to ease compliance for businesses and reduce operational complexities.

Economic impact and tourism boost

The GST reductions are anticipated to lower travel costs, encouraging more domestic tourism. Budget-conscious travellers are likely to benefit from the lower accommodation and airfare expenses, potentially increasing the frequency of domestic trips.

This surge in travel could stimulate various sectors, including hospitality, dining, and local attractions, contributing to economic recovery post-pandemic.

The hospitality industry, particularly in the budget and mid-range segments, is expected to see increased demand as a result of these tax cuts.

Hotels can offer more competitive pricing, attracting a broader base of tourists. However, luxury hotel rooms priced above ₹7,500 per night will continue to attract an 18% GST rate, maintaining their exclusivity.