India is set to increase the Goods and Services Tax (GST) on premium airline tickets significantly this month.
Effective September 22, 2025, GST on all flight classes other than economy, including premium economy, business, and first class will rise from the current 12% to 18%.
Standard economy-class fares will continue to be taxed at the concessional 5% rate , unchanged as part of the government’s two-tier GST regime overhaul.
This change, approved by the GST Council in its early-September meeting, means that flying in premium cabins will soon carry a substantially higher tax burden for travelers.
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The timing of ticket booking and payment will determine which GST rate applies. If a premium-class ticket is booked and paid for before September 22, the old 12% GST rate still applies for that journey.
However, any booking in business, first, or premium economy made on or after the effective date will incur the 18% GST, immediately driving up the total fare.
In other words, passengers planning trips in upscale cabins after the tax hike may save money by purchasing their tickets before the new rate kicks in.
Why Flying Premium Just Got More Expensive
A business class cabin on an Indian airline. Higher GST means premium seats like these will carry increased ticket prices for travelers.
For travelers, this airfare tax increase in India translates directly into higher ticket prices for any seat above economy class.
Airlines are expected to pass on the additional 6 percentage-point tax to passengers, making premium fares notably pricier.
For example, a flight in business or first class that previously incurred 12% GST will now see the tax jump to 18% – a 50% increase in the tax component, which adds roughly ₹6,000 in extra tax per ₹1,00,000 of base fare.
This sharp hike essentially targets luxury travel spending: the GST Council’s message is that non-essential, discretionary flying should attract a higher tax burden.
Importantly, economy-class tickets remain taxed at just 5%, a policy intended to keep air travel affordable for the masses.
Budget-conscious flyers and the middle class won’t see any new tax impact on regular economy flights. By preserving the low 5% GST on economy fares, the government aims to encourage broad access to air travel even as it raises more revenue from premium services.
This two-tier approach of 5% vs. 18% for air travel aligns with a larger GST simplification drive, classifying economy travel as a “merit” service with a low tax, and premium classes as “standard” or luxury services taxed at the higher rate.
Notably, an even higher 40% GST slab has been created for super-luxury items like private jets and yachts as part of the revamp , underscoring that upscale travel is being targeted for greater taxation.
Impact on Business & First-Class Travelers in 2025
The GST hike on premium airline seats comes at a time when demand for business- and first-class travel in India had been on the upswing.
Industry data in 2025 showed a strong appetite for premium cabins, with many travelers upgrading for extra comfort on flights.
Now, a steeper tax may force some customers to rethink their choices.
Leisure flyers who occasionally splurge on business class might downgrade to economy to save money, and even cost-conscious corporate travel managers could tighten policies on premium-class bookings.
Travel agents warn that higher GST will “directly [make] airfares for all the three classes shoot up,” likely discouraging many individual flyers from booking non-economy classes.
The added cost could temper the growing trend of middle- and upper-middle-class passengers opting for premium economy or business seats.
“Increasing the GST for upper-class fliers directly means airfares for all the three classes will shoot up,” said Ajay Prakash, former president of the Travel Agents Federation of India, adding that levying higher GST is only going to discourage people from choosing those cabins.
He noted the new rate has come at a “very sensitive phase” for the Indian aviation market , which is still recovering and expanding post-pandemic.
That said, some analysts believe the true impact on premium demand might be limited. Business-class flyers, especially corporate travelers and high-net-worth individuals, often have lower price sensitivity.
Jitin Makkar, senior VP at rating agency ICRA, noted that the increase should not have a significant impact on the business class segment considering its relatively inelastic demand – though he expects “some amount of downtrading to the economy segment.”
In other words, the most frequent and well-heeled premium travelers may continue flying in comfort despite the tax, but price-sensitive flyers on the fence about upgrading might opt to stick with economy more often.
By keeping rates low for economy travelers, the GST change at least ensures the entry-level flying public isn’t affected, which helps maintain air travel accessibility in India.
Airline Industry Reactions and Pricing Strategies
Unsurprisingly, airlines and industry groups have raised concerns about the GST increase.
The change to 18% was part of a broader GST overhaul (sometimes dubbed “GST 2.0”), but Indian carriers had lobbied against higher taxes on flights.
In fact, prior to the decision, two major airlines had appealed for GST on all classes – including premium – to be brought down to 5%, according to officials. That plea went unheeded.
With the Council’s announcement, the steep tax on premium tickets has triggered worries among airlines and online travel agents about dampening demand.
One airline insider, requesting anonymity, said the increase is not a massive shock but it is enough to make airlines “rethink budgets and booking strategies.”
The source noted that India’s airlines are already under pressure from high operating costs and other challenges, so an added tax on their highest-fare customers comes at a tricky time.
Airlines may respond by tweaking pricing structures – for instance, offering promotional premium fares or limited-time upgrades – to keep their business and first-class cabins full despite the tax.
Carriers will likely also double down on marketing the value of flying premium (such as lie-flat seats, lounge access, priority services) to convince travelers that the extra comfort is worth the extra cost, even with taxes factored in.
The International Air Transport Association (IATA) has openly criticized the move.
Sheldon Hee, IATA’s regional vice president for Asia Pacific, called the decision “disappointing” and said it came with “no clear justification.”
In IATA’s view, the higher tax “runs counter to the efforts of Indian carriers”, many of which have been investing in better premium products to enhance the travel experience.
The association warned that the tax hike could dampen demand and undermine profitability, given that premium flyers are often a key source of airline revenue.
“Taxing premium travellers, where these customers often make a difference to a route’s viability, is counterproductive,” Hee remarked, noting that the tax on non-economy air travel in India has risen dramatically – GST is now 18%, up from roughly 8.6% under the pre-2017 service tax regime.
In an industry where Asia-Pacific airlines are forecast to earn just about $2.60 profit per passenger in 2025, any hit to high-fare ticket sales can squeeze margins.
On the other hand, government officials defend the change as part of a necessary simplification and rebalancing of the tax structure.
The new GST framework pares down most goods and services to just two main rates (5% for basic or “merit” items and 18% for standard or luxury ones) , while creating a 40% slab for a handful of super-luxury or “sin” categories.
Premium-class airline travel, while not shoved into the 40% luxury bracket, is clearly being treated as a non-essential luxury that can contribute more to the exchequer.
The flip side is that mass travel and tourism should benefit from lower taxes elsewhere – for instance, GST on many mid-range hotel rooms was cut from 12% to 5% in the same policy package.
By making upscale travel modes costlier and budget travel cheaper, the government aims to boost domestic tourism while drawing more revenue from those with greater ability to pay.
Industry leaders in hospitality have lauded the tax cuts on budget travel as a much-needed stimulus for volume travel , even as airlines fret about the hit on their premium segment.
What Travelers Should Know and Do
For frequent flyers and premium-class customers, this tax change means it’s time to adjust strategies.
If you’re a traveler who enjoys flying business or first class, you’ll want to be mindful of the new rules to avoid unnecessary costs. Here are some key tips:
- Book premium flights now: If you plan to fly after Sept 22 in a premium cabin, try to book and pay before that date to take advantage of the 12% GST while it lasts. The tax rate is based on when you purchase the ticket (and make payment), so an early booking can save you money on the exact same flight compared to booking later.
- Watch out for re-bookings: Any new booking or re-ticketing on/after Sept 22 will incur the 18% GST, regardless of your travel date. If you need to change an existing reservation, check how the tax difference will be handled. In some cases, rebooking a ticket after the effective date could trigger the higher tax on the new fare.
- Use loyalty rewards wisely: Consider redeeming frequent-flyer miles or credit card points to upgrade to business class rather than paying the full cash fare. This way you minimize out-of-pocket costs – although you’ll still have to pay the applicable taxes and fees on award tickets (which will include the higher GST if your award is issued after Sep 22).
- Economy remains tax-friendly: With economy tickets staying at 5% GST, you might decide to stick with economy for certain trips where the premium upsell isn’t crucial. The gap in total price between economy and business will widen due to the tax difference, so evaluate if the extra comfort and perks of premium justify the significantly higher cost. For a somewhat upgraded experience without the steep price, some travelers may opt for premium economy (though it’s taxed at 18% now, the base fare is lower than business).
- Corporate travel adjustments: Business travelers should inform their companies about the tax change. Companies may be able to claim input GST credit on work-related premium travel (softening the blow) , but many firms could also tighten their travel policies in response. Don’t be surprised if your employer encourages economy class for shorter trips or requires higher-level approval for booking business class going forward, given the higher expense. If you do travel premium for work, ensure that the GST on your ticket is accounted for in expense budgets or recovery claims.
Flying Forward Under the New GST Regime
India’s decision to hike GST on premium air travel underscores a larger policy balancing act between affordability and revenue.
On one hand, the government is keeping entry-level travel cheap to stimulate volume – economy flights and mid-range hotels are as affordable as ever, thanks to the low 5% GST slab.
On the other hand, those opting for luxury in the skies are now expected to contribute more. Essentially, India is treating premium airfare as a luxury good, and taxing it accordingly.
This will simplify the tax structure and boost government revenues, but it will also test the elasticity of demand in a fast-growing aviation market.
Airlines and passengers will be watching closely to see how this plays out. If premium flyers largely absorb the extra 6% tax without cutting back on travel, the industry impact may be minimal (aside from higher ticket tax revenues flowing to the government).
But if a significant number of travelers downgrade to economy or reduce their trips, airlines could feel the pinch in what is traditionally their most lucrative segment.
In the coming months, carriers will likely monitor booking trends and perhaps adjust their strategies to ensure business and first-class cabins stay attractive despite the tax.
For now, anyone planning to fly premium in India should brace for higher airfares starting late September.
It’s a classic case of paying more for premium perks: the comfort and privileges of business or first class will now come with a steeper tax bill attached.
Whether this GST hike proves to be a mere blip for upscale travel demand or a more lasting deterrent remains to be seen, but travelers and airlines alike are already adapting to the new cost.