The Indian hospitality sector is now adapting to the major tax shift brought by GST 2.0, which came into effect on 22nd September 2025.

For hotels, this update changes how room tariffs are taxed and how operating costs are managed.

If you’re a hotelier, understanding the impact of GST 2.0 on hotels in India is crucial to staying competitive and compliant.

GST 2.0: What Has Changed for Hotels?

Hotel rooms priced ≤ ₹7,500/night → 5% GST (without Input Tax Credit – ITC)
Hotel rooms priced > ₹7,500/night → 18% GST (with ITC)

This change simplifies tax slabs but creates new challenges for budget and mid-range hotels.

What is Input Tax Credit (ITC) in hotels?

Input Tax Credit (ITC) allows businesses to claim back the GST paid on goods and services they use.

For hotels, this includes items like:

Toiletries and cleaning supplies
Linen, furniture, and maintenance services
Restaurant raw materials
Software and technology services

With GST 2.0, hotels charging ≤ ₹7,500 per night cannot claim ITC, which means higher operational costs.

Impact of GST 2.0 on Budget & Mid-Range Hotels

Hotels with room tariffs in the ₹1,500 – ₹7,500 range are directly affected:

✅ Benefit: Guests pay only 5% GST, making stays appear cheaper.
❌ Challenge: Hotels lose ITC, leading to higher operating costs.
🔄 Result: Many budget hotels may increase base room rates to recover lost margins.

This is where the real impact of GST on hotels is felt most strongly — small and mid-scale hoteliers.

Impact of GST 2.0 on Premium & Luxury Hotels

Hotels with tariffs above ₹7,500 per night remain under the 18% GST slab.

✅ Benefit: They can continue to claim full ITC and balance operational expenses.
❌ Challenge: Guests face higher GST, which may affect price-sensitive travelers.

Luxury hotels will likely remain more stable in profitability compared to budget hotels.

Comparison: Budget vs. Luxury Hotels Under GST 2.0

Hotel Category	GST Rate	ITC Benefit	Guest Impact	Hotel Profitability
Budget / Mid-Range (≤ ₹7,500)	5%	❌ Not allowed	Lower tax, attractive pricing	Margins squeezed due to higher costs
Luxury / Premium (> ₹7,500)	18%	✅ Allowed	Higher tax burden	Margins protected with ITC

How GST 2.0 Affects Hotel Operations

Pricing Strategies – Budget hotels may revise tariffs to protect margins.
Accounting & Compliance – Hotels need billing systems that apply the correct GST slab and ITC rules.
Profitability Tracking – Software should help identify margin gaps caused by the loss of ITC.
Guest Communication – Hotels must explain the new GST benefits or challenges clearly to avoid confusion.

Final Thoughts

The impact of GST 2.0 on the hospitality industry in India is a double-edged sword. Budget and mid-range hotels gain an advantage in guest perception with lower GST, but face higher costs due to the loss of ITC. Luxury hotels continue with higher GST but are better protected financially.

At Cheerze Connect, our cloud-based Hotel Management Software is GST 2.0 ready — with automated billing, accurate tax calculation, and compliance reports. We help hoteliers adapt to tax changes without compromising guest satisfaction or profitability.