For example, a user on X (formerly Twitter) Harshdeep Rapal shared his experience in an article: “Each time I visit the Golden temple, I reserve the same hotel. It usually costs between 5500 ₹ and 6500 ₹ per night via @makemytrip. Now I expected a drop in tariff. @Makemytrip: Is the TPS calculated on the original 14,499 ₹ or ₹ at a reduced price?
CNBC-TV18 did not independently verify the tweet.
Online travel agencies (OTA) have requested the clarity of the Central Council for Indirect Taxes and Customs (CBIC) since the announcement of revised prices on September 3, 2025 and entered into force on September 22.
Previously, the OTAs could compensate for TPS on bulk reservations and saving customers by demanding it as CIT.
But, with new rates, the advantages of ITC’s complaint have been withdrawn, increasing the point of view of TPS, which the OTAs have transmitted to the end consumer.
In its representation with the CBIC, the OTA industry warned that the hotel segments of the intermediate and budgetary market – the backbone of online reservations – are the most vulnerable.
The elimination of ITC revives the cascading tax effect, TPS aimed at eliminating, pressing the margins and complicating pricing strategies.
Meanwhile, in a distinct representation of the CBIC, the Federation of Hotel Associations and Restaurants in India (FHRAI) has echoed similar concerns.
The president of the FHRAI, SUREDE Kumar Jaiswal, told the 69th Aga that mid-term hotels are now faced with inappropriate TPS costs that increase operating expenses, reduce the affordability and dissuade investments.
“A renovation project with a value of 1 crore of 1 ₹ could now attract 18 Lakh of the non-Cretable TPS, a long-term maintenance liquidity and financial stability,” he also explained the challenges encountered by the sector.
Tax experts agree. Rahul Shekhar, partner at Nangia Andersen LLP, notes that hotels can absorb ITC costs or transmit them to consumers, which has an impact on profitability.
Nagpal Ikesh, leading lead taxes at AKM Global, warns that “the abolition of ITC risks higher costs, has disrupted growth and reduction in competitiveness, especially in budgetary and mid -level hotels.”
The problem, however, lies in the denial of input tax credit (ITC) for the lower level of different levels. For example, hotels can no longer claim the TPS paid on key inputs such as rent, public services, outsourced services and capital expenses – make TPS a non -crisp cost.
This structural flaw obliges hotels to absorb additional expenses, preventing price reductions from reaching consumers, claims FHRAI.
Economically, timing is critical. Domestic tourism rebounds strongly, 2024 domestic expenses planned to exceed 16 sterling books, said the Fhrai.
The budget and intermediate market hotels outside the metros stimulate this recovery, but the change in TPS threatens to block investments and expansion, risking millions of livelihoods in the tourist ecosystem of India, added the FHRAI.
The government is now faced with a difficult choice: maintaining a low rate of TPS without ITC or restoring ITC to avoid cascade costs and preserving investment incentives.
Fhrai has proposed solutions, in particular the restoration of ITC for parts at price ≤ 7,500 ₹ or the authorization of hotels to opt for 18% of TPS with ITC, clarifying compliance with grouped services and structural reforms recognizing hospitality as an infrastructure to unlock credits and facilitate approvals.
And the OTAs are also looking for the restoration of ITC benefits at the reduced rate of 5% for this segment.
