How GST Affects Hotel Bookings and the Hospitality Industry

Also check out our blog on : Challenges in Hospitality Industry

GST Slab Rates for Hotel Rooms in 2025

The GST rate for hotel rooms is not fixed as it depends on the room tariff. According to GST Council Meetings, there is a standardized tax rate applicable for all hotel stays -

Segment of hotel

Transaction value per room per night

Earlier GST Rate

New GST Rate on and after 22 September 2025

ITC

Budget and Mid-range property 

Up to Rs 7500 

12% 

5% 

No ITC 

Luxury Property 

Above Rs 7500 

18% 

18% 

No ITC 

Example of GST calculation for hotel rooms:

A person stayed at a hotel in Bangalore. She booked a room at Rs 10,000/night.

Room Tariff

Cost for each room (in INR)

GST rate (%)

GST rate (in INR)

Room price (3 nights)

30,000

18%

Rs 5,400

The final price for 3 nights becomes Rs 30,000 + Rs 5,400 = Rs 35,400

What does the new GST regime mean for hoteliers and guests?

• For hoteliers

Many hoteliers have been waiting for this GST reduction, and this move has been appreciated across the hospitality industry. The removal of input tax credit at the 5% slab means they saw a rise in occupancy and bookings.

The downside is that they can't claim input tax credit on essentials like laundry services and F&B.

This means that luxury accommodations that price their rooms above Rs 7,500/night still have to pay 18% GST.

To qualify for the 5% GST slab, hotel owners at luxury properties can offer discounts to travelers. They can also provide complimentary services (breakfast, free Wi-Fi) with other room amenities.

As room prices decrease, hotel owners can see increased demand for properties even during the low season. This means your property becomes an attraction point for both domestic and international travelers.

Rahul saw an uptick in bookings since the new rates were implemented. This 7% saving will translate to more revenue and market share for hoteliers.

For new hotel owners, the challenge remains the same as they stand to lose a considerable portion of input tax credit.

Example comparison between Earlier GST rate and New GST rate:

Sale = Rs 1,00,000

Earlier GST = 12,000

Purchase = Rs 40,000

GST on purchase = 18% = Rs 7,200

Net GST payable = Rs 4,800

With new rates:

Sale = Rs 1,00,000

GST payable = 5% = Rs 5,000

No input tax credit of Rs 7,200

Effectively, GST reform benefits the consumer by 7% or Rs 7,000

Here, the hotelier loses input tax credit of Rs 7,200.

To compensate for input tax loss, hoteliers might not pass the complete benefit to guests.

• From guest's perspective

These lower GST benefits could lead to a significant rise in travel as consumers have higher disposable income.

The revised GST slabs from 12% to 5% mean that properties become more affordable to price-conscious guests.

For domestic travellers, this is likely to boost leisure bookings, particularly in 3- and 4-star hotels where the 5% GST rate applies.

For international travellers, lower GST rates may make India a more competitive option compared to other budget-friendly destinations in Southeast Asia, such as Thailand and Vietnam, increasing inbound leisure tourism.

This 7% reduction in GST rates means they can get more value for less price.

What strategies can hotels adopt to increase their bookings as per the new GST changes?

Here are strategies that hoteliers can adopt to increase bookings according to GST reforms:

1) Try to come under the tariff slab for 5%

As festivities approach, you need to keep your room prices below or at Rs 7,500 so you can increase demand for your hotel rooms. This way, you can attract more price-conscious customers who can now afford your services.

If you're running a large property and offer rooms at Rs 7,500 or above, there would be no relief for luxury guests.

Result: Affordable pricing = Longer stays = More bookings = More revenue

2) Create better packages or bundle their services

Instead of focusing only on reducing room prices, you can bundle packages that keep the base room tariff under ₹7,500 while still increasing overall revenue.

Consider a scenario 

A small resort lowered its base room tariff to ₹7,499 to fall under the 5% GST slab. By offering bundled services like stay + breakfast + spa, the resort was able to increase occupancy by 20% and boost overall revenue per guest.

You can design different types of offers such as:

• Stay + spa + breakfast
• Stay + local experiences or tours
• Stay + F&B credits

This means by keeping room tariff and add-on services separate, you will still stay under the 5% slab and guests continue to pay more for add-ons, maximizing revenue without exceeding the threshold.

Note: Focus on creating smart packages that combine stays with F&B or local experiences to increase booking and generate higher revenue per guest.

3) Target domestic leisure travelers

The domestic leisure market is growing. One study state that demand for India's leisure travel market is expected to reach $12 trillion by 2040.

With these tax cuts, hoteliers get an opportunity to target mid-segment travelers as they're ready to upgrade their choices.

As a hotel owner, you need to target them with the right offers or use revenue management software to reprice your offerings.

4) Make your hotel stand out on OTAs and other distribution channels

As a hotelier, you can capture more demand by creating a strong presence on OTAs, booking channels, and social media to drive more bookings. For that, have hotel management software in place to manage bookings, inventory, and OTA listings.

For example, Botshot’s Booking Engine and Innovative solution BuildmySyte allow hotels to increase direct bookings and improve visibility without relying solely on OTAs, helping reduce commission costs and maintain control over pricing and GST compliance.

How BOTSHOT can help you simplify GST compliance for all hotels?

Whether you're a mid-range or budget property, we will ensure that your booking prices comply with the revised GST rates. Modern PMS solutions like PredictoPMS allow hoteliers to set tax rules based on room tariff.

• If room price < Rs 7,500, then 5% GST will be applicable
• If room price >= Rs 7,500, then 18% GST will be applied automatically

Our property management system also handles GST compliance filings, including monthly GSTR-1, GSTR-3B, and annual returns. This helps hotels avoid penalties or extra costs from late or incorrect filings.

Best part? This hotel management software digital invoicing, e-invoicing, and QR code generation, which are essential for hotels to stay fully GST-compliant while streamlining billing and reporting.

Since 70% of people book their trips through online travel agencies, you need to update room prices and availability across multiple distribution channels.

Investing in a channel manager can be a game changer. A 2-way integration between PMS and channel manager ensures that room tariff rules you apply on PMS will be pushed across other OTAs in real time.

No need for manually updating room prices with new GST changes.

Result: Get more bookings and increase your revenue as your pricing strategy is updated automatically.

FAQs

1. What are the current GST rates for hotel rooms in India?

The current GST rates that’s effective from 22 September 2025 will be -

• Mid-market hotels priced below or at Rs 7500/night = GST rate drops from 12% to 5% (without ITC).
• For luxury stays whose room tariff is priced at Rs 7500/night remained the same. Their positioning is meant in such a way to attract premium travellers.

2. How does GST affect hotel booking prices for guests?

For guests, drop-in GST rates have made properties more affordable especially when festivities are coming along the way.

Think of this way what used to charge them at 12% GST has dropped down to 5% and this 7% reduction in savings give guests more value for the price.

3. Which hotel services are taxed separately under GST?

There are different types of hotel services that are taxed separately under GST -

• Booking prices
• Ancillary services such as SPA
• Restaurant services
• Cancellation charges

4. Can business travellers claim input tax credit on hotel stays?

Yes, business travellers can claim ITC on their hotel stays if the booking is made for business purposes (not personal travel) and is billed under the business GSTIN.

5. How should hotels display GST-inclusive pricing on OTAs and websites?

Hotels should display room prices inclusive of GST, so guests know the final cost at the time of booking. Most PMS and booking engines automatically calculate GST based on room tariffs, making it easier for hotels to stay tax-compliant and transparent to guests.

6. Can hotels absorb GST, or must it always be charged to guests?

Hotels can either include GST in the room price (absorb it) or pass it on to guests. 

For guests, absorbing GST means the hotel keeps the advertised rate the same and bears the tax internally, which can be used as a pricing strategy to attract customers. 

Passing it on to guests is more transparent and ensures proper invoicing

7. What happens if a hotel incorrectly charges 12% instead of 5%?

If the GST charged is incorrect, guests may pay more than necessary or get confused about the final bill. Hotels must correct the invoice and pay the correct GST, which can sometimes delay billing or refunds. Accurate GST ensures guests are charged fairly and transparently while helping hotels avoid financial and legal complications

8. How are ancillary services like banquets, events, and MICE taxed?

Ancillary services are taxed separately under GST, depending on the service type:

• Banquets and event spaces: GST applies as per service type (usually 18%).
• MICE services (Meetings, Incentives, Conferences, Exhibitions): GST is charged on the package or service, separate from the room tariff.
• Other add-ons like food, beverages, or SPA services are taxed individually according to the applicable slab. 

Tools like BOTSHOT let hotels configure GST for each service or item dynamically, ensuring correct tax calculation and easy compliance with government slabs.