Impact of GST on Travel & Tourism Business | Expert Insights

India’s travel and tourism industry plays a vital role in driving the country’s economy by generating employment and promoting its rich culture and heritage. From domestic travel and international holidays to hotel stays and tour packages, millions of people engage with and depend on this industry each year.

In July 2017, the Indian government introduced the Goods and Services Tax (GST), a single indirect tax system that replaced multiple state and central taxes. This change had a direct impact on the travel and tourism sector which affects how services are priced, taxed, and delivered.

For business owners, tour operators, hoteliers, and even travelers, GST brought both clarity and confusion. While some services became more streamlined under a uniform tax system, others saw changes in compliance, cost structure, and billing.

This article will help you understand how GST has influenced the travel and tourism business, what the tax rates are for different services, and what challenges or benefits industry players may experience. If you are in the tourism business or planning to enter it, this guide will give you the insights you need to stay informed and compliant.

What is GST?

GST (Goods and Services Tax) is a comprehensive, multi-stage, destination-based indirect tax levied on the supply of goods and services in India. It was introduced on 1st July 2017, replacing a complex system of multiple indirect taxes like VAT, service tax, excise duty, etc.

The main idea behind GST is to bring everything under one tax system, instead of having different rules and rates in every state. That’s why it is often called “One Nation, One Tax”.

Now, GST isn’t just one tax it comes in different forms, which depend on where the sale happens:

• Central Goods and Services Tax (CGST): This is collected by the Central Government when you sell something within your state.
• State Goods and Services Tax (SGST): Collected by your State Government when you sell something within the state.
• Integrated Goods and Services Tax (IGST): This is applied when you sell across state borders like from Delhi to Maharashtra. This is collected by the Central Government and later shared with the states.

Whether you are booking a hotel, hiring a cab, or running a travel agency, GST works in the background this makes things more uniform and structured. Businesses get credit for the tax they have already paid, which means they are not taxed multiple times on the same amount.

GST Rates Applicable to Travel & Tourism Services

If you are in the travel and tourism business or even just planning a trip, you have probably noticed GST charges on bills. But what exactly are these charges? Those are discussed below:

• Hotel Accommodations

GST on hotels is based on the room tariff per night (not the amount you actually pay after discounts). Below is the current rate structure:

Example:
If you book a hotel room for ?6,000 per night, the GST will be 12%. But if your room tariff is ?800, there’s no GST charged.

• Air Travel

GST on flight tickets depends on the travel class:

• Economy class – 5% GST
• Business class – 12% GST

This applies to both domestic and international tickets booked in India.

• Tour Packages

If you are a travel agent or tour operator offering packages, the GST rate is:

• 5% GST (on the total package value, without input tax credit)

This applies to both domestic and international tour packages. The tour operator cannot claim input tax credit under this rate.

• Restaurant Services

Whether it is a hotel restaurant or a standalone one, GST depends on the type of establishment:

• 5% GST (without input tax credit) for most restaurants
• 18% GST (with input tax credit) for restaurants in hotels charging ?7,500+ per night for rooms

Note: Restaurants inside hotels with room tariffs above ?7,500 are taxed differently.

• Transportation Services

GST on travel-related transportation services varies:

• Cab aggregators such as Ola and Uber are subject to 5% GST (no ITC).
• The GST on vehicle rentals with a driver is 5% (no ITC) or 12% (with ITC), based on the way the invoice is issued.
• Transport of passengers by air-conditioned contract carriages like tour buses: 5% GST

These GST rates can directly impact the pricing strategy of travel companies and the budget of customers. If you know them it helps you in better planning and transparent billing.

Positive Impact of GST on the Travel & Tourism Industry

The introduction of Goods and Services Tax (GST) has brought many changes across industries in India and the travel and tourism sector is no exception. While there were initial concerns, GST has mostly had a positive impact on this industry. Some of them are mentioned below

1. 1. One Nation, One Tax: A Simplified Tax Structure

Before GST, travel businesses had to deal with multiple taxes like service tax, luxury tax, VAT, and others. This made tax filing complex and confusing.

Now, GST has replaced all those with a single, unified tax. Whether it is hotel booking, tour packages, or cab services, GST has streamlined everything under one umbrella. This has made it easier for businesses to manage taxes and for customers to understand what they are paying for.

1. 2. Input Tax Credit (ITC): Saving Money for Businesses

Under the GST system, businesses can claim credit for the GST they pay on goods and services used for their operations. This is referred to as the Input Tax Credit (ITC).

For example: If a tour operator pays GST on hotel bookings, transport, or food services as part of a package, they can claim credit for that tax and reduce their total tax liability. This ultimately brings cost savings and encourages transparency.

1. 3. Transparency & Ease of Doing Business

GST has made billing and tax documentation more transparent. Every transaction is now properly recorded through GSTIN numbers and e-invoices. This has made it easier to track transactions and reduced chances of tax evasion.

For new and small travel businesses, this also means less paperwork, fewer complications, and more confidence in setting up operations.

1. 4. Boost for Organized Players

Since GST compliance requires proper documentation and registration, it has helped in formalizing the sector. Unregistered or unorganized travel operators are now being pushed to follow proper tax rules.

This change has created a level playing field, this is giving more opportunities to genuine, registered players to grow and gain customer trust.

The Indian travel and tourism industry has become more structured, cost-efficient, and business-friendly. This shift not only makes it easier for travel businesses to run smoothly but also gives customers more transparent pricing and better overall value. For all updates or rates, you can always check the official GST portal.

How GST Has Made Travel Simpler for Tourists

It has always been exciting to travel across India but now, with the introduction of Goods and Services Tax (GST), it has also become more transparent and streamlined when it comes to costs.

• Clear and Simple Travel Package Pricing

Earlier, travelers often found it confusing to understand what they were paying for, as there were multiple taxes like service tax, luxury tax, VAT, and more, which varied from state to state. Now, GST has replaced all those with one single tax, which makes it easier to know exactly what you are paying for. Whether you are booking a holiday package or customizing your trip, the pricing is much clearer and consistent across the country.

• Hotel and Restaurant Bills Are More Transparent

Thanks to GST, hotel tariffs and restaurant bills now clearly show how much tax is being added, so there are no surprises. For example:

• Budget hotels with room rates under ?1,000 don’t have any GST at all.
• Mid-range and luxury hotels have defined GST rates based on their room charges.

Even when eating out, most restaurants now follow a flat 5% GST rate, which simplifies your bill and makes dining out stress-free.

• A Smooth Experience for All Types of Travelers

Whether you are a backpacker or a luxury traveler, the GST system offers a more unified and reliable pricing experience. Since there is no more confusion with multiple taxes, travelers can now focus more on enjoying their trip than worrying about the bill breakdown.

The introduction of GST has simplified and clarified travel costs, making vacations across India more straightforward and enjoyable.

What Experts Say About GST in Travel & Tourism

Since the Goods and Services Tax (GST) was introduced, many professionals in the travel industry have shared their views on how it has changed the way business works. Let’s take a closer look at what industry experts and real businesses have to say.

1. 1. A Simpler Tax System Means Smoother Operations

Many travel agency owners and GST consultants agree that GST has made the tax system much more uniform. Instead of dealing with various taxes like service tax, VAT, and luxury tax, businesses now deal with just one tax across states.

1. 2. Travel Startups Benefiting from Input Tax Credit (ITC)

GST allows travel businesses to claim Input Tax Credit on the services they use to run their business, like hotel bookings, transport, and more. This has helped businesses manage costs better.

Example: A mid-sized travel agency based in Pune reported that their backend costs were reduced after GST, as they could now claim ITC on hotel bookings and cab rentals used in tour packages.

1. 3. Better Transparency for Customers

According to several industry consultants, customers now get detailed, itemized bills. This improves the trust and gives a more professional feel to the overall service.

While every change takes time to adjust to, many experts believe that GST has brought long-term benefits to the travel and tourism sector, that help it become more organized, competitive, and efficient.

Recommendations for Travel Businesses under GST

The travel and tourism industry in India has adapted well to the Goods and Services Tax (GST) system. However, to run smoothly and gain maximum benefit, travel businesses need to follow certain best practices. Here are some helpful recommendations:

1. 1. Stay GST-Compliant at All Times

First and foremost, register under GST if your turnover exceeds the limit set by the government which is ?20 lakh for most states and ?10 lakh for special category states. Ensure that you file GST return like GSTR-1, GSTR-3B, etc, on time every month or quarter to avoid penalties.

1. 2. Follow Smart Billing Practices

Always issue a proper GST invoice with clearly mentioned GSTIN, applicable tax rate, HSN/SAC codes, and the breakup of CGST/SGST or IGST. For example, hotel bookings and tour packages need to have their respective GST rates correctly shown. This builds trust with clients and ensures transparency.

1. 3. Track and Claim Input Tax Credit (ITC) Efficiently

Travel businesses often use services like hotel bookings, transport, or advertising. If GST is paid on these, the business can usually claim ITC, this reduces the overall tax burden. Use accounting software or a GST consultant to match purchase invoices and ensure you claim every eligible credit.

1. 4. Leverage GST Reports to Analyse Profitability

GST returns not only help in tax compliance but also offer insights into your business. You can study your sales trends, input costs, and ITC usage. This data can help make better financial decisions and increase profitability over time.

Role of Professional Services in GST for Travel Businesses

When it comes to GST, travel businesses can benefit a lot from the guidance of experts. The rules and filings can get a bit technical, and that is where professional services like GST consultants and legal advisors play a key role.

Why GST Consultants Matter

GST consultants are trained professionals who understand the latest rules, rates, and return filing procedures. They can help travel agencies correctly apply tax rates on services like hotel bookings, air travel, and packaged tours. Since tax rates often change based on service type and value, they provide you with expert assistance that helps to avoid mistakes.

Consultants also make sure businesses claim the right amount of Input Tax Credit (ITC). This is very important because it directly reduces the overall tax burden and improves cash flow.

Benefits of Outsourcing GST Compliance

Many travel businesses, especially small and medium ones, may not have in-house tax experts. For them, outsourcing GST-related work is a smart choice. Here is why:

• Time-saving: Professionals handle return filings, invoice checks, and documentation, so business owners can focus on their services.
• Error-free returns: Mistakes in GST filing can lead to penalties. Experts ensure accuracy in records and timely submissions.
• Legal peace of mind: Legal advisors help interpret GST law and provide support if there’s a notice or audit from the tax department.

In short, professional services ensure that travel businesses stay compliant, avoid penalties, and use GST benefits effectively. You can focus on what you do the best, create great travel experiences all while professionals taking of your GST filing.

At Online Legal India, we provide expert assistance in GST filing, ITC tracking, and compliance management services. This helps travel businesses of all sizes stay stress-free and fully compliant with the law.