Travellers expecting cheaper hotel stays after the GST rate reduction on rooms under Rs 7,500 on September 22, 2025, have found little relief, according to reports from industry experts and social media users.
A tweet by a tax expert highlighted the issue: His usual hotel near the Golden Temple, costing Rs 5,500-Rs 6,500 per night via MakeMyTrip, showed no significant price drop despite the GST cut from 18% to 5%. "Even if GST is calculated on the discounted rate, the math doesn't match," he tweeted, raising questions about how the new rates are being applied.
Online Travel Agencies (OTAs) have been seeking clarity from the Central Board of Indirect Taxes and Customs (CBIC) since the revised rates came into effect. Previously, OTAs could claim Input Tax Credit (ITC) on bulk bookings, passing savings to customers. The removal of ITC for rooms under Rs 7,500, however, increases GST outgo, forcing OTAs and hotels to absorb the additional costs or pass them on to consumers, leaving bills largely unchanged.
The Federation of Hotel & Restaurant Associations of India (FHRAI) echoed these concerns. FHRAI President noted that mid-market hotels now face unrecoverable GST costs on key inputs such as rent, utilities, outsourced services, and capital expenditure, making rooms less affordable and discouraging investment. "A refurbishment project worth Rs 1 crore could now attract Rs 18 lakh in non-creditable GST, straining liquidity and long-term financial stability," he said.
Tax experts warn that the removal of ITC risks higher costs, squeezed margins, and reduced competitiveness, particularly in budget and mid-tier hotels-the backbone of domestic tourism. With domestic tourism projected to exceed Rs 16 trillion in 2024, delayed investment and stunted growth in this segment could affect millions of livelihoods.
FHRAI has proposed solutions, including restoring ITC for rooms priced Rs 7,500 or below, allowing hotels to opt for 18% GST with ITC, and clarifying compliance on bundled services. OTAs have also requested restoration of ITC benefits to ensure the GST cut benefits reach consumers.
The government now faces a critical choice: maintain the 5% GST rate without ITC, or restore ITC to prevent cascading costs, preserve profitability, and sustain investment in India's booming tourism sector.
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