A recent government move may help midmarket travellers: rooms priced below ₹7,500 now attract just 5% goods and services tax (GST), down from 12%. Still, the impact on hotel occupancy and investor returns is expected to be modest. Rooms above that threshold remain in the 18% bracket, meaning India’s most expensive hotels could still be out of reach for many.
“On a blended nationwide basis, there isn’t much of a correlation between the GST regime change and expected performance of hotels,” Achin Khanna, managing partner and strategic advisor at Hotelivate told Mint.
“While consumers will be pleased, this won’t translate into higher occupancies. It’s one of those ‘good-to-have’ benefits for the guests…Hotel owners and investors are not happy because of the input tax credit being taken away for rooms at the 5% GST category. The industry had sought a 12% flat rate (with input credit provisions) and not a 5% and 18% structure,” Khanna said.
A night in a five-star deluxe averaged at ₹16,797 as of March 2025, up almost ₹1,200 from the previous year, while a budget room cost about ₹3,581, roughly 4% more than a year ago. Luxury rooms now cost nearly five times as much as budget stays, though midmarket hotels may see some relief thanks to the GST cut, according to Hotelivate’s Trends & Opportunities 2025 report, accessed exclusively by Mint.
Record metrics masking disparity
The GST change coincides with record occupancies across the country and a development pipeline exceeding 100,000 rooms. Luxury hotels in Mumbai, Delhi, Bengaluru, and Hyderabad—together holding 28% of India’s branded supply—saw rates climb 8.3% in 2024-25. By contrast, midscale hotels in smaller towns recorded just 3% growth, as new openings almost matched bookings, leaving little room for rate hikes, according to the report.
The top 10 hotel companies now control 65.3% of India’s branded supply, a sign of growing consolidation.
The report said nationwide occupancy, or the proportion of rooms sold, rose to 68% in 2024-25, up slightly from 67.3% a year earlier. At the same time, average daily rate (ADR) climbed 4.7% to ₹8,432, while revenue per available room (RevPAR), which blends occupancy and price, rose 5.7% to ₹5,736.
However, the gains have been lopsided as leisure markets show strong performance at the luxury end of the spectrum, but the influx of lower-positioned hotels has diluted overall averages and, in some cases, even triggered RevPAR decline.
Khanna cautioned about oversupply in emerging markets: “Smaller industrial towns reflect ambitious supply additions that can outpace current demand realities. Unless supply is carefully matched to prevailing market conditions, the risk of underperformance increases meaningfully.”
The industry has also faced geopolitical headwinds. IHCL’s managing director and CEO, Puneet Chhatwal, told analysts that Q1FY26 saw demand impacted by tensions like the India-Pakistan border skirmishes following Operation Sindoor, the incident in Pahalgam, and the Israel-Iran conflict, which led to partial airspace closures, disrupted flight routes, and numerous hotel cancellations.
Despite the volatility—stock market fluctuations, weak earnings for some hotel companies, and overall flat performance in FY26 so far, compared to last year—Khanna remains optimistic: “Still, we stand by our belief that domestic and religious tourism will remain robust and that get-away destinations and tier 1 metros will continue to perform strongly.”
Mid-market future and aggressive expansion
For the first time in over a decade, India’s proposed branded supply has crossed 100,000 rooms, representing a 58% expansion over the next five years. The active development pipeline as of March 2025 stood at 114,151 rooms, with Bengaluru, Mumbai, Jaipur, and Goa leading the charge. But the report cautioned that this aggressive push, while reflecting confidence, risked becoming unsustainable if demand slows.
While luxury and leisure destinations continue to drive current room revenues, the future pipeline shows a clear strategic shift: midmarket and upper midmarket hotels account for nearly 50% of the future supply. Surprisingly, future supply for luxury hotels is limited, adding just 4.8%.
This trend is likely driven by India’s evolving demographics and growing middle class, which are fuelling demand for high-quality hospitality offerings without necessarily leaning toward ultra-luxury.
Consolidation among major brands is evident across the country, with Marriott International holding the top spot by room count, surpassing 24,000 rooms and controlling 13% of all supply.
However, the Indian Hotels Company Limited (IHCL), known for Taj and Ginger, is close behind with 12.2% of the supply and boasts the widest national reach, having recently opened 28 new hotels with 3,195 rooms.
In terms of sheer property numbers, the recently listed ITC Hotels has overtaken Marriott. Among international rivals, the Radisson Hotel Group leads in geographic coverage, operating in 76 markets, while rising domestic players like Sarovar Hotels and Sterling Holiday Resorts are also expanding their footprint rapidly.
Big city vs small town
The disparity between India’s major metropolitan areas and the rest of the country is increasingly stark. In the four major markets of Mumbai, Delhi, Bengaluru, and Hyderabad, which house 28% of all branded hotel rooms, hotels saw healthy, premium growth: the average room price jumped 8.3% in 2024-25, and revenue per available room (RevPAR) rose 12.1% as demand consistently outpaced the available rooms.
In contrast, the rest of India experienced much slower growth. Here, both room prices and revenue grew at a more modest rate of around 3%, primarily because the massive 12.2% increase in new rooms was almost perfectly balanced by the 12.3% rise in bookings, giving hotels little leverage to raise prices.
Regionally, South India leads the nation with 71.8% occupancy, while East India trails at 63.1%. Tellingly, older properties (those operating since before 2020-21) are outperforming newer ones, running at 71.9% occupancy and earning a 9.2% RevPAR premium over the national average, suggesting that the recent influx of supply is still struggling to establish consistent demand.
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