Posted on: Nov 12, 2025 | 3 mins | Written by: HDFC ERGO Team

GST Cuts On Budget Hotels & Economy Flights 2025

GST Cuts On Budget Hotels & Economy Flights

Tax changes made by the GST Council on September 22, 2025, will make travel much cheaper for many people. This is a big step forward. These changes aim to lower the cost of hotel stays below ₹7,500 per night and make taxes easier for different types of flights.

The government ensures that GST on travelling expenses for domestic tourists, regular flyers, and families who travel frequently is reduced by lowering the tax load on mid-budget hotels and keeping the tax rates on low-cost airfare fixed. It talks about what has changed, how much you can save, and what to be careful of.

GST Reductions on Budget Hotels

One of the major wins from the September 2025 update is the downward revision in GST applicable to budget hotel accommodations.

What are the new GST rates for hotels?

1. Hotel rooms costing up to ₹7,500 per night are now subject to a 5% GST tax rate without the Input Tax Credit (ITC). In the past, these rooms cost 12% GST plus ITC.

2. Rooms that cost more than ₹7,500 per night will still have 18% GST added to them.

3. Rooms that cost less than or equal to ₹1,000 per night still don't have to pay GST.

What does it mean to say "without ITC"?

1. Hotels in the ₹7,500 range can't get a tax refund for the goods and services they use during those stays.

2. This limit may cause costs to go up for companies, but the tax break is meant to help people who book within that limit.

Rooms with mixed goods and meals:

1. You look at the total value if you book a room with meals or other services. This includes 18% GST if the total is more than ₹7,500 per night.

2. There is a 5% tax on rooms that cost ₹7,500 or less (without ITC) even in high-end hotels.

The new GST rate for hotels doesn't give managers an Input Tax Credit (ITC), but most people in the business are happy about the change. They think lower prices and higher usage rates will compensate for the lost ITC.

It makes things clearer and easier to understand, which makes it easier to figure out taxes and collect credits. Experts in the field say this change "democratises travel" by making good lodging available to a broader range of people.

Lower GST on Economy Flight Tickets

At the same time, the government changed the GST rates on economy-class fares. People and companies have been waiting a long time for this change.

What changed for different types of air travel?

1. Domestic economy class tickets still cost 5% more than before, and the rate hasn't changed.

2. The GST on non-economy classes (luxury economy, business, and first class) has increased from 12% to 18%.

Date of effect and booking issues:

1. All of these changes will take place from September 22, 2025, as agreed upon at the 56th meeting of the GST Council.

2. It's important to note that the booking/billing date, not just the trip date, is what counts. If you booked before the old rules went into effect, that bill may have old GST on it.

This deliberate difference in tax rates shows that the government wants to encourage mass tourism and help middle-class travellers. It may slightly raise prices for business and expensive travellers, but it's in line with a trend worldwide to tax luxury services more.

This also makes the price difference between business and economy classes stand out more. It might make some high-end travellers choose economy instead, which would help that market grow even more.

Impact on Middle-Class and Frequent Travellers

These changes will have different effects depending on how, when, and where you move.

Who will benefit from these changes?

1. People who book hotels with room rates of ₹7,500 will pay a lot less tax, which will lower the total cost of their stay. Families, people travelling alone, and people taking weekend trips all gain immediately.

2. To keep their GST on travelling expenses predictable, economy class travellers keep tax rates stable and avoid rises.

3. Small business travellers, students, and people who take short trips often save money over time, especially when hotel costs make up a big part of their trip spending.

Who has to pay more?

1. People who fly first class will have to pay more because GST on those tickets has increased from 12% to 18%.

2. Guests at high-end hotels that pay more than ₹7,500 per night or get package services might not save any money because their stays still fall under the 18% slab.

3. Because there is no ITC on the ₹7,500 range, hotels have to deal with some cost pressures, which could mean that they have to change the rates for other charges.

Effects on the economy and sectors as a whole:

1. As prices drop, more people will want to visit their country, especially in mid-range hotels and less well-known spots.

2. Budget hotel rental rates may go up by 7–10%, according to predictions from the business.

3. ITC had helped the hospitality industry's margins by offsetting many costs. This was especially true for hotels that switched between slabs or used blended supplies.

Conclusion

The changes to the GST in September 2025 are a clear step towards making travel cheaper. The tax on hotel rooms up to ₹7,500/night is now 5% without ITC, while the tax on luxury stays stays at 18%. This is good news for people looking for mid-range lodging. The 5% GST rate for economy class stays the same, but the GST rate for other booking groups increases.

These changes will lower some of your bills if you plan to travel after September 22. This is especially true if you are staying somewhere expensive. Although not always advantageous for all classes, the focus on GST on travelling expenses has been reduced. You can save the most money under the new rules by living in cheap hotels, sticking to a budget, and keeping an eye on the date of your bills.

Frequently Asked Questions on GST and Affordable Travel

1. What is the current GST rate for budget hotels in 2025?

If the final bill for a hotel room is less than ₹7,500 per night, GST is 5% without the Input Tax Credit (ITC). Rooms that cost more than ₹7,500 per night have 18% GST added to them. Finally, rooms that cost less than ₹1,000 per night do not have GST added to them.

2. How much GST is charged on economy flight tickets?

Economy class tickets on local airlines still cost 5% GST, the same as they did before the changes in September 2025. This ensures that people who fly economy don't have to pay more taxes. In the most frequent fare group, it also helps control GST on travelling expenses.

3. Are luxury hotels and business class flights included in GST cuts?

No, high-end hotels with rates over ₹7,500 per night will still be subject to the 18% GST slab. Business class, luxury economy, and first class tickets now must pay 18% GST instead of 12%. That lower 5% rate doesn't apply to these higher-end trip levels.

4. Has GST actually lowered travel expenses for families?

Yes, for many. People with families who stay in moderate places and fly economy will get the most out of this. The lower room tax, steady airfare tax, and fewer unexpected GST costs add to savings. The combined result can significantly cut the cost of a vacation, especially for trips that last more than one night.

5. Do GST changes apply to international economy flights?

No. The new GST rates mainly cover trips within India and hotel stays. A lot of the time, tickets for international flights are considered export services, which means they don't count towards GST. Extra services connected to travelling abroad, like insurance or extra fees, might still be subject to domestic taxes.

Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales.


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