The International Air Transport Association (IATA), representing approximately 350 airlines worldwide, including Indian carriers, expressed strong disapproval of the Goods and Services Tax (GST) Council’s decision to raise the GST rate on non-economy class air travel from 12 percent to 18 percent, effective September 22, 2025. Describing the move as “disappointing” and lacking justification, IATA warned that the tax hike could dampen demand and threaten the profitability of premium routes critical to the aviation industry’s viability.

The GST Council, comprising representatives from the central and state governments, approved a simplified two-rate GST structure of 5 percent and 18 percent on September 3, 2025, as part of a broader tax regime overhaul. While the GST on economy class tickets remains unchanged at 5 percent, the increased rate on premium, business, and first-class tickets has sparked concerns. Sheldon Hee, IATA’s Regional Vice President for Asia Pacific, noted that the new 18 percent GST significantly exceeds the 8.6 percent service tax rate applied in 2017, undermining Indian carriers’ investments in enhancing premium travel experiences.

Hee emphasized India’s remarkable aviation growth, citing its position as the world’s third-largest aviation market, with passenger traffic projected to double to 500 million by 2030. He highlighted the sector’s potential to drive economic growth through improved connectivity for travelers and businesses. However, he cautioned that the GST increase on non-economy travel risks stifling this progress, particularly as Asia Pacific airlines are forecasted to earn only $2.60 per passenger in 2025. “Taxing premium travelers, where these customers often make a difference to a route’s viability, is counterproductive,” Hee stated, urging a holistic government approach to avoid policies that could harm demand and profitability.

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Jitin Makkar, Senior Vice President at ICRA, predicted that airlines would pass the GST hike onto consumers, but noted that the low price elasticity of the business class segment may limit its impact, though some passengers might opt for economy seats. Domestic airlines have not yet commented on the development. The controversy underscores the tension between fiscal policy and the aviation industry’s growth ambitions, raising questions about balancing revenue generation with sustaining India’s aviation boom.

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