Hotel Industry Seeks GST Cuts and Tax Incentives in Union Budget 2025-26
The hotel industry is looking to the Union Budget 2025-26 for potential reforms that could lower costs for accommodation and dining, making travel more affordable for consumers.
K.B. Kachru, President of the Hotel Association of India and Chairman Emeritus & Principal Advisor for Radisson Hotel Group in South Asia, told Mint that the industry is pushing for a reduction in Goods and Services Tax (GST) rates for hotel rooms and restaurant services, along with tax incentives to improve the sector’s viability.
Such changes could reduce operational costs for hotels, enhance affordability for travelers, and help attract more international tourists. Given the challenges of high operating costs and regulatory hurdles, Kachru believes these measures would also draw more investment, create jobs, and contribute to India’s long-term economic growth.
Tax Cuts and Incentives
Kachru advocates for a simplified GST framework for hotels and restaurants, along with a lower GST rate for Meetings, Incentives, Conferences, and Exhibitions (MICE) services aimed at international tourists. This would enhance the sector’s competitiveness and viability for foreign visitors.
He proposed reducing the 18% GST on hotel rooms priced above ₹7,500 to 12%, aligning it with rates in other Asian countries. He also suggested cutting GST on hotel restaurants to 12%, with full Input Tax Credit (ITC), making them more competitive against standalone restaurants, which currently have a 5% GST rate without ITC.
Kachru emphasized the need to rationalize taxes on Indian consumers too. “Countries like Thailand, Singapore, and Sri Lanka are capitalizing on this opportunity, tapping into the same travel budgets of Indian tourists who also spend domestically,” he said.
Infrastructure Status
The Hotel Association has long advocated for granting infrastructure status to the hotel sector, which would bring associated benefits like better financing options, lower development costs, and tax incentives. However, hotels can only receive infrastructure status if they meet specific criteria, such as large-scale development. If these criteria were revised, it could significantly ease access to bank loans and financing for developers.
Updating the Reserve Bank of India’s harmonized master list of infrastructure sectors to include hotels would also help, Kachru noted. Such a revision would ensure consistency across financial regulations and policies, encouraging more investment in hotel room development—a key component of India’s tourism infrastructure.
India’s tourism vision for 2047 aims to attract 100 million international tourists and 20 billion domestic travelers. Achieving this ambitious goal will require rapid growth in the hotel sector, which, according to Kachru, is severely underdeveloped compared to competing Asian destinations.
The current supply of approximately 200,000 hotel rooms is insufficient to meet the growing demand. Hotel projects are capital-intensive and face long development timelines, with high commercial interest rates making them less viable. “Private sector investment will drive the next phase of growth, but we need sufficient incentives to attract institutional investors,” Kachru stressed.
While the government has begun recognizing the sector’s importance, some challenges persist due to the fact that tourism is a state subject, meaning that each state governs its own tourism policies and investments. However, Kachru hopes for greater uniformity among states regarding hotel construction regulations.
“If the sector aims to reach its goal of one million hotel rooms, up from the current 200,000, government support will be essential to create consistency across states,” he added.
Industry Performance
According to hospitality consulting firm Hotelivate, the hotel sector finished 2023-24 with a national occupancy rate of 67.5%, the highest in a decade, and an average daily rate of ₹8,055—an all-time high. Over the past five years, the sector experienced a compound annual growth rate (CAGR) of 6.6% in available room nights and 7.2% in occupied room nights.
However, the report noted that while 2024-25 continues to build on this momentum at a national level, some markets are beginning to show early signs of negative trends.
