Hotel Stays get cheaper as new GST rates take effect: Complete Guide for Travelers

Major Relief for Mid-Range Hotel Bookings

The revised GST structure brings substantial savings for budget and mid-range travelers during the festive season. Under the new rates, a room priced at Rs.5,000 per night now attracts only Rs.250 in GST (5%) instead of the previous Rs.600 (12%), resulting in direct savings of Rs.350 per night. The maximum benefit caps at Rs.525 for rooms at the Rs.7,500 threshold.

The GST rate structure now follows a simplified framework-

• Below Rs.1,000: 0% GST (unchanged)
  
  

• Rs.1,000 to Rs.7,500: 5% GST (reduced from 12%)
  
  

• Above Rs.7,500: 18% GST (unchanged)
  
  

Important Note: GST is calculated on the declared room tariff, not discounted prices. If a Rs.8,000 room is offered at Rs.6,500 due to promotions, GST still applies at 18% on the original Rs.8,000 rate.

What Travelers Should Know About Compliance

Despite the consumer-friendly changes, travelers must remain vigilant about proper GST application. Alay Razvi, Managing Partner at Accord Juris, advises guests to always demand detailed bills and verify applicable GST rates for their room category. If hotels fail to apply correct rates, guests can file complaints through:

• National Consumer Helpline: Toll-free 1915
  
  

• INGRAM online portal
  
  

• GST grievance portal
  
  

These platforms provide complaint tracking numbers and digital monitoring, with online complaints typically receiving faster resolution.

However, Shashank Shekhar, Partner at DMD Advocates, points out a significant change: anti-profiteering provisions under GST ceased operation from April 1, 2025, removing statutory avenues for challenging hotels that don't pass on tax benefits to consumers.

Industry Faces Operational Challenges

While consumers celebrate reduced rates, hotel operators express serious concerns about the withdrawal of Input Tax Credit (ITC) benefits. The Federation of Hotel & Restaurant Associations of India (FHRAI) warns this creates substantial operational challenges.

Under the new system, hotels charging 5% GST cannot offset the 18% GST they continue paying on rentals, maintenance, utilities, and capital expenditure. CA Deep Koradia explains that hotels must now segregate ITC usage between different rate categories, and failure to do so results in credit reversals under Rules 42 & 43, ultimately increasing operational costs.

K. Syama Raju, FHRAI President, illustrates the impact: "A Rs.1 crore refurbishment project would now incur an additional Rs.18 lakh in unrecoverable GST burden," significantly straining hotel liquidity and deterring reinvestment.

Key Demands from Hotel Industry

FHRAI has submitted several demands to the GST Council:

• Restoration of ITC benefits (fully or partially)
  
  

• Delinking Food & Beverage services from room tariffs
  
  

• Recognition of hotel rooms as 'Plant & Machinery' for ITC eligibility
  
  

• Increase in 18% GST threshold from Rs.7,500 to Rs.12,500 per night
  
  

• Regularization of past GST dues on "as-is" basis
  
  

Expert Perspectives on Market Impact

Industry leaders welcome the consumer benefits while acknowledging operational challenges. Nikhil Sharma, MD & COO South Asia, Radisson Hotel Group, notes that "the simplified tax structure provides much-needed clarity for hotel operators and travelers, enabling long-term planning".

Rahool Macarius, Market Managing Director Eurasia, Wyndham Hotels & Resorts, emphasizes the timing: "The GST reform comes at exactly the right time, with the most significant impact in the mid-market space where India's expanding middle class drives demand for high-quality yet affordable stays".

CA Ashish Niraj, Partner at ASN & Company, explains the government's rationale: "GST works on value addition principles. If input credit were allowed on 5% output rates, the government would effectively receive no revenue, causing significant losses".

What This Means for Travelers

The new GST rates represent a clear win for domestic tourism, particularly benefiting the growing middle class seeking quality accommodation at affordable prices. According to the Hotel Association of India, travelers gain approximately 7% relief on room rates up to Rs.7,500, with additional savings on food menu GST.

The changes come at an opportune time as India approaches the festive season, with Prime Minister Modi declaring a "GST savings festival" to boost consumer spending and domestic tourism.

For travelers, the key takeaway is simple: mid-range hotel stays are now significantly more affordable, but vigilance regarding proper billing and GST application remains essential to ensure full benefits reach consumers.