A collaborative report by EY India and FICCI has suggested reducing GST on hotel rates exceeding ₹7,500 from 18% to 9%, deeming it a critical action needed to address India’s reputation as an “expensive destination.”
This demand arises as inbound tourism remains sluggish compared to global counterparts, even with India’s robust domestic travel and growing hospitality infrastructure.
Core Issue: Cost Competitiveness
The report highlights that excessive accommodation expenses, primarily due to taxation, significantly deter international visitors, drawing comparisons with nations like Thailand and Vietnam, which provide more attractive pricing.
Currently, hotel rooms priced over ₹7,500 face an 18% GST, while those between ₹1,000 and ₹7,500 are taxed at 5%. The report indicates that this steep tax increase disproportionately impacts premium and luxury segments, which are vital for attracting high-spending foreign guests.
A reduction to 9% would facilitate lower final room rates, enhance value perception, and align India more closely with competing international markets.
Expanding Inbound Tourism Gap
The advocacy for tax reductions is also influenced by India’s ongoing inbound tourism challenge. Foreign arrivals were around 9.9 million in 2024, modest in comparison to competing Asian destinations.
This comes despite tourism contributing nearly ₹21 trillion to India’s GDP and providing over 46 million jobs, underscoring the sector’s economic importance and unrealized potential.
The report warns that with over 100,000 hotel rooms in development, failing to stimulate international demand could result in supply-demand disparities in coming years.
A Need for Structural Overhaul
Titled “Reimagining Inbound Tourism in India: Trends, Technology & Transformational Opportunities – Towards Incredible India 4.0,” the report advocates for a comprehensive strategic overhaul beyond just tax reforms.
It points out that India’s tourism framework remains disjointed, with state-led branding efforts lacking coherence and international visibility. Limited global marketing, absence of experience-oriented travel packages, and challenges in visa and connectivity continue to pose obstacles.
The report supports a transition from a destination-centric model to an experience-focused approach, presenting India as a cohesive offering rather than a random collection of locations.
Experience-Driven Segments as Growth Drivers
India’s evolving tourism landscape is increasingly influenced by experience-oriented sectors like spiritual tourism, wellness retreats, culinary travel, wildlife exploration, and sports tourism.
Event-driven tourism is emerging as a significant catalyst for growth. The live entertainment industry surpassed ₹12,000 crore in 2024, with projections of nearly 19% CAGR over the next three years, demonstrating potential to draw international audiences through concerts, festivals, and sporting events.
Simultaneously, shifting traveler demographics—including Gen Z, women, and solo adventurers—are reshaping expectations, with digital platforms and AI-driven discovery increasingly influencing travel choices.
International Opportunities, Domestic Necessities
On a global scale, international visitor spending is anticipated to grow at 5.5% annually, reaching $2.95 trillion by 2034. The report positions this as a significant opportunity for India that necessitates prompt policy action to seize.
Enhancing price competitiveness, especially in accommodation, is viewed as a fundamental step in this direction.
The Journey Forward
The industry’s call for GST rationalization captures a broader concern: India risks falling behind more competitively priced destinations, despite its rich tourism offerings.
A reduction in GST on premium hotel stays, the report suggests, could serve as a catalyst, not only for increasing inbound arrivals but also for repositioning India as a value-driven, experience-rich global tourism hub.
Without such initiatives, the gap between India’s tourism potential and its actual performance may continue to widen.
