A collaborative report by EY India and FICCI has proposed reducing GST on hotel room rates exceeding ₹7,500 from 18% to 9%, describing it as a vital move to address India’s image as an “expensive destination.”
This demand emerges as inbound tourism continues to lag behind global competitors, despite robust domestic travel trends and a growing hospitality infrastructure.
Cost Competitiveness at the Core
The report highlights that exorbitant accommodation costs, greatly influenced by taxation, deter international travelers, positioning India unfavorably against destinations like Thailand and Vietnam, which provide more competitive rates.
At present, hotel rooms above ₹7,500 are subject to 18% GST, whereas those priced between ₹1,000 and ₹7,500 incur a tax of 5%. The report indicates that this sudden tax increase disproportionately burdens the premium and luxury segments, essential for attracting high-spending foreign tourists.
A decrease to 9% would help lower final room prices, enhance perceived value, and bring India more in line with competing international destinations.
Inbound Tourism Gap Widens
The push for tax reductions is also motivated by India’s ongoing inbound tourism deficit. In 2024, foreign tourist arrivals were approximately 9.9 million, relatively modest compared to rival Asian destinations.
Despite tourism contributing nearly ₹21 trillion to India’s GDP and generating over 46 million jobs, the sector’s economic significance and untapped potential remain apparent.
The report warns that with over 100,000 hotel rooms in the development pipeline, failing to stimulate international demand may result in supply-demand mismatches in the future.
A Structural Reset Needed
Titled “Reimagining Inbound Tourism in India: Trends, Technology & Transformational Opportunities – Towards Incredible India 4.0,” the report advocates for a comprehensive strategic reset that extends beyond tax reforms.
It states that India’s tourism ecosystem is fragmented, with state-led branding initiatives lacking coherence and international visibility. Limited global marketing, a lack of experience-focused travel packaging, and hurdles in visa and connectivity processes persist as obstacles.
The report recommends transitioning from a destination-centric focus to an experience-driven model, presenting India as a cohesive offering rather than a series of unrelated locations.
Experience-Led Segments Drive Opportunity
India’s evolving tourism landscape is increasingly influenced by experience-oriented segments like spiritual tourism, wellness retreats, culinary adventures, wildlife exploration, and sports tourism.
Simultaneously, changing traveler demographics, including Gen Z, women, and solo travelers, are reshaping expectations, with digital platforms and AI-driven discovery becoming increasingly significant in travel choices.
Global Opportunity, Domestic Imperative
On a global scale, international visitor spending is projected to increase by 5.5% annually, reaching $2.95 trillion by 2034. The report presents this as a noteworthy opportunity for India, albeit one that necessitates immediate policy actions to seize.
Enhancing price competitiveness, especially in accommodation, is viewed as a fundamental step in this direction.
The Road Ahead
The industry’s demand for GST reform reflects a wider concern: that India may risk falling behind more competitively priced destinations despite its diverse tourism offerings.
A reduction in GST on premium hotel accommodations, as argued in the report, could serve as a catalyst for not only increasing inbound arrivals but also repositioning India as a value-driven, experience-rich global tourism hub.
Without such initiatives, the disparity between India’s tourism potential and actual performance is likely to continue widening.
