The central government’s proposal to raise the Goods and Services Tax (GST) on business and premium class air tickets from 12% to 18% has triggered concern across the aviation and tourism industries. If approved, the increase will make both domestic and international premium travel more expensive, directly impacting frequent flyers, corporate travellers and luxury tourists.
For airlines, the move could be especially challenging. Although business and first-class seats represent a smaller share of total capacity, they contribute disproportionately to revenues. Industry experts fear that higher fares may dent demand in the premium segment, which is still recovering from the disruptions caused by the pandemic.
GST rationalisation
The proposed hike is part of a broader effort to rationalise India’s GST structure. Since its rollout in 2017, the tax system has faced criticism for being complex, with four main slabs—5%, 12%, 18% and 28%—alongside multiple exemptions and cesses. This structure has often led to confusion, compliance challenges and disputes.
According to reports, the Group of Ministers (GoM) on rate rationalisation is set to recommend a simpler two-rate system of 5% and 18%, under which most goods and services would fall. Luxury items such as aircraft, helicopters and aeroplanes for personal use are also expected to face steeper taxation, with GST on them rising from 28% to 40%.
Likely winners from the new tax regime
While airfares could rise, many essential and commonly used goods may become cheaper under the proposed restructuring. Consumer durables such as washing machines, air conditioners and refrigerators are likely to attract lower GST, boosting household consumption.
Agriculture and allied sectors are also set to benefit, with fertiliser acids, bio-pesticides, drip irrigation systems, tractors and their parts moving to a 5% slab from the current 12–18%. Renewable energy devices including solar cookers and water heaters would also become more affordable.
Everyday items such as synthetic yarns, carpets, handicrafts, footwear priced below Rs 2,500, as well as school supplies like maps, pencils, crayons and geometry boxes, are all slated for a tax cut to 5%. Healthcare is expected to see the biggest relief, with all medicines taxed at 5%, over 30 cancer and rare-disease drugs exempted entirely, and surgical equipment moved to the lower slab. Food products like ghee, butter, dry fruits, confectionery and even packaged drinking water are also expected to see reduced GST.
When is GST Council meeting?
The proposals will be taken up at the upcoming GST Council meeting on 3–4 August, chaired by the Union Finance Minister. Prime Minister Narendra Modi, who described the new framework as a “Diwali bonanza” during his Independence Day address, said the reforms aim to simplify taxation while easing household budgets and encouraging consumption.