From budget hotels to public transport: How will GST reforms benefit travel and tourism?

India’s travel and tourism sectors expect a major transformation following the government’s announcement of major GST rationalisation measures across the hospitality and transport industries. According to the government, these tax reductions are strategically designed to make the travel experience much more accessible and affordable for the average citizen, while simultaneously strengthening the domestic tourism ecosystem and encouraging sustainable growth.

The core objective of these reforms is to foster inclusive growth, accelerate the post-pandemic recovery of tourism, and generate job opportunities and investment across related sectors.

How much cheaper will it be to stay overnight?

Perhaps the most important change benefiting middle-class and budget travellers is the steep reduction in accommodation tax.

For hotel stays priced below ₹7,500 per day, the Goods and Services Tax (GST) rate has been cut from 12% down to 5% (this new 5% rate is applied without the benefit of Input Tax Credit). This decrease is specifically intended to make budget-friendly hotel stays more affordable.

The increased affordability is expected to boost domestic trips focused on weekend travel, pilgrimage circuits, heritage tourism, and eco-tourism. Furthermore, lowering this tax burden helps align India’s hospitality tax structure with those of other international destinations, making the country more attractive for foreign tourists.

The change is also anticipated to spur economic activity by encouraging investment in new mid-segment hotels, homestays, and guesthouses, thereby creating jobs and improving local infrastructure.

What difference will it make to public transport costs?

Public transport is also set to become more financially viable and safer. The GST rate applied to the purchase of buses and minibuses (specifically those with a seating capacity of 10 or more persons) has been substantially reduced from 28% to 18%.

This tax cut reduces the upfront cost of these essential vehicles for a wide range of operators, including state transport undertakings, schools, corporate fleets, and tour providers. The expectation is that this saving will be passed on, helping to bring down ticket fares, particularly benefiting passengers on semi-urban and rural routes.

The reduction also supports the modernization and expansion of transport fleets, which is crucial for improving comfort and safety standards for the public. An additional benefit is sustainability: promoting a shift from private vehicles towards shared and public transport helps reduce traffic congestion and pollution.

What is the expected outcome for India’s travel sector?

The strategic focus on enhanced affordability in accommodation and travel is projected to expand domestic and foreign tourist inflows. This growth is anticipated to generate expanded employment opportunities across the hospitality, transport, and artisan sectors, fostering significant economic growth.

The industry has already demonstrated strong recovery post-pandemic, evidenced by the sharp rise in Foreign Tourist Arrivals (FTAs) in India, which increased from 15.27 lakh in 2021 to 99.52 lakh in 2024.