The GST Council has raised the Goods and Services Tax on non-economy air travel—from premium economy up to first class—from 12% to 18%. Meanwhile, economy class fares remain taxed at lower, unchanged rates, ensuring affordability for mass travelers.
This decision has triggered concern among airlines and online travel agencies, especially considering the sector’s fragile state amid recent challenges. Airlines had previously requested a uniform 5% GST across all classes, but their appeal was not heeded.
Ajay Prakash, former president of the Travel Agents Federation of India (TAFI), highlighted that raising GST on higher-end seats could result in fare increases across all classes, thereby discouraging passengers from opting for premium seats—even as the government promotes aviation expansion with larger aircraft.
ICRA’s Jitin Makkar expects the additional GST burden to be passed on to customers. An anonymous airline insider described the hike not as a dramatic shift, but enough to force adjustments in airlines’ budgeting and ticketing strategies—especially as passenger confidence is already low following the Air India tragedy in June and the continued closure of Pakistani airspace, both key pressure points for the aviation industry.
Sheldon Hee, IATA’s Asia-Pacific regional vice president, criticized the move as “disappointing,” arguing that India’s aviation growth story is rooted in investments in premium products and connectivity. He noted that taxing the most revenue-generating passengers could undermine route economics and profitability.
However, Makkar believes that business-class demand may remain resilient due to low price sensitivity, though some customers might still downgrade to economy. Encouragingly, the new GST structure brings clarity for economy travelers and maintains rates for those booking before the changeover—offering transitional protection and promoting travel demand. This could ultimately support the broader tourism and hospitality ecosystem, including hotels and restaurants.