India’s hospitality industry is stepping up its demand for tax rationalisation, arguing that high GST rates on premium hotel rooms are eroding the country’s competitiveness in the global tourism market and deterring inbound travellers.
A joint report by EY India and FICCI has recommended cutting GST on hotel tariffs above ₹7,500 from 18% to 9%, calling it a critical step to correct India’s “expensive destination” perception.
The demand comes at a time when inbound tourism continues to lag global peers, despite India’s strong domestic travel demand and expanding hospitality supply.
Cost Competitiveness at the Core
The report underscores that high accommodation costs, driven significantly by taxation, are a key deterrent for international tourists, comparing India with destinations such as Thailand and Vietnam, which offer more competitive pricing.
Currently, hotel rooms priced above ₹7,500 attract 18% GST, while those in the ₹1,000–₹7,500 bracket are taxed at 5%. According to the report, this sharp jump in tax rates disproportionately affects premium and luxury segments, which are crucial for attracting high-spending foreign tourists.
A reduction to 9% would help moderate final room tariffs, improve value perception, and align India more closely with competing international markets.
Inbound Tourism Gap Widens
The push for tax cuts is also rooted in India’s persistent inbound tourism gap. Foreign tourist arrivals stood at around 9.9 million in 2024, modest when compared with competing destinations in Asia.
This is despite tourism contributing nearly ₹21 trillion to India’s GDP and supporting over 46 million jobs, highlighting the sector’s economic significance and untapped potential.
The report cautions that with over 1 lakh hotel rooms in the development pipeline, failure to boost international demand could lead to supply-demand imbalances in the coming years.
A Structural Reset Needed
Titled “Reimagining Inbound Tourism in India: Trends, Technology & Transformational Opportunities – Towards Incredible India 4.0,” the report calls for a broader strategic reset beyond tax reforms.
It argues that India’s tourism ecosystem remains fragmented, with state-led branding efforts lacking cohesion and global visibility. Limited international marketing, absence of experience-led travel packaging, and friction in visa and connectivity processes continue to act as barriers.
The report advocates a shift from a destination-centric approach to an experience-driven model—positioning India as a unified offering rather than a collection of disparate locations.
Experience-Led Segments Drive Opportunity
India’s evolving tourism landscape is increasingly being shaped by experience-led segments such as spiritual tourism, wellness retreats, culinary travel, wildlife exploration, and sports tourism.
Event-led tourism is emerging as a key growth driver. The live entertainment sector crossed ₹12,000 crore in 2024 and is projected to grow at nearly 19% CAGR over the next three years, indicating strong potential to attract international audiences through concerts, festivals, and sporting events.
At the same time, shifting traveller demographics—including Gen Z, women, and solo travellers—are redefining expectations, with digital platforms and AI-led discovery playing a growing role in travel decisions.
Global Opportunity, Domestic Imperative
Globally, international visitor spending is expected to grow at 5.5% annually, reaching $2.95 trillion by 2034. The report positions this as a significant opportunity for India—but one that will require urgent policy intervention to capture.
Improving price competitiveness, particularly in accommodation, is seen as a foundational step in this direction.
The Road Ahead
The industry’s demand for GST rationalisation reflects a broader concern: that India risks losing out to more competitively priced destinations despite its diverse tourism offerings.
A reduction in GST on premium hotel stays, the report argues, could act as a catalyst—not just for boosting inbound arrivals but for repositioning India as a value-driven, experience-rich global tourism destination.
Without such measures, the gap between India’s tourism potential and performance may continue to widen.
