GST input-tax-credit: Centre eases rules, from November 1

The Centre has notified changes to GST input-tax-credit conditions for specified hotel, restaurant and catering services, allowing limited credit for purchases from suppliers in the same line of business. The Ministry of Finance’s Notification No. 06/2026-Central Tax (Rate), dated 27 October 2026, makes the changes effective from 1 November 2026.

For the hotel accommodation entry, the notification permits credit on accommodation bought from another accommodation supplier, but caps that credit at the tax calculated at a central tax rate of 2.5 per cent. For the restaurant entry, it allows credit on restaurant services procured from another provider of restaurant services other than at “specified premises”.

Input tax credit means credit for tax charged on purchases used to make a business’s supplies. The notification does not open credit to every purchase made by the affected businesses: it retains the restriction on other goods and services used in supplying the service.

Issued by the Department of Revenue as G.S.R. 936(E), the notification amends the services tax notification No. 11/2017-Central Tax (Rate), dated 28 June 2017. The government states that it is acting on the GST Council’s recommendations and considers the amendments necessary in the public interest.

Hotel accommodation credit has a ceiling

The hotel amendment replaces the credit condition against item (i) of serial number 7 in the services table. The Ministry of Finance’s earlier Notification No. 15/2025-Central Tax (Rate), dated 17 September 2025, had set the central tax rate for that entry at 2.5 per cent from 22 September 2025, subject to a condition that input tax credit on goods and services used in supplying the service had not been taken.

The October notification changes that condition rather than the rate shown against the hotel entry. It creates an exception for hotel accommodation services purchased from another supplier of hotel accommodation.

The exception is limited. Under the new wording, when the upstream supplier charges central tax above 2.5 per cent, the recipient cannot take credit for the portion exceeding tax calculated at that rate. These percentages refer to central tax, not the combined GST rate.

The ministry illustrates the rule with a transaction in which a customer books accommodation from a supplier for Rs 7,000 per unit per day. To fulfil that booking, the supplier procures accommodation from another provider for Rs 10,000 per unit per day.

In the notification’s example, the upstream provider charges central tax of Rs 900 at 9 per cent, while the supplier serving the customer charges central tax at 2.5 per cent. The supplier can take credit of only Rs 250, calculated at 2.5 per cent of the Rs 10,000 purchase, rather than the full Rs 900.

The example therefore places the ceiling on the tax attributable to the purchased accommodation service. It does not make the full tax charged by the upstream provider creditable merely because that purchase was needed to fulfil the booking.

Restaurant exception depends on the purchased service

For the restaurant entry at serial number 7, item (ii), the October notification retains the condition against taking credit on goods and services used in supplying the service, but excludes a defined category of purchased restaurant services from that restriction.

The ministry describes the exception as an input service in the same line of business: a service procured from another provider of restaurant service other than at specified premises. The replacement wording does not contain the additional 2.5 per cent ceiling expressly attached to the hotel accommodation condition.

“Specified premises” is a classification used in the restaurant tax framework. The Ministry of Finance’s Notification No. 05/2025-Central Tax (Rate), dated 16 January 2025, introduced a revised definition with effect from 1 April 2025.

Under that definition, premises fall within the category for a financial year if the supplier provided any unit of hotel accommodation there in the preceding financial year at a value above Rs 7,500 per unit per day or equivalent. The definition also includes premises brought into the category through declarations.

For a registered accommodation supplier, the January notification provides for a declaration between 1 January and 31 March of the preceding financial year. For a person applying for registration, it provides a declaration window of fifteen days from acknowledgement of the registration application.

The September 2025 notification subsequently clarified, with effect from 1 April 2025, that a person applying for registration also includes someone seeking an amendment to add a place of business. It defined premises as a place from which hotel accommodation services are supplied or are to be supplied.

This classification predates the latest credit amendment. In its release on the meeting of 21 December 2024, the GST Council recommended linking the treatment of restaurant services in hotels to accommodation values in the preceding financial year, rather than declared tariffs. That release provides the background to the premises rules; the operative same-line-of-business credit changes are in the October 2026 notification.

Catering and railway food supplies also covered

The October notification makes related changes to the conditions for railway food supplies and outdoor catering.

For the railway food entry, the ministry allows an exception for inputs and input services in the same line of business. Its wording covers food, other articles for human consumption and drinks procured from Indian Railways, IRCTC or their licensees, whether supplied in trains or at platforms.

For the outdoor catering entries, the notification permits credit on outdoor catering services purchased from another outdoor catering supplier. As with the hotel accommodation provision, credit is restricted to tax calculated at a central tax rate of 2.5 per cent where the upstream supplier charges a higher rate.

The ministry’s catering illustration concerns a customer engaging a supplier for a combined supply of outdoor catering and premises rental for a wedding at premises other than specified premises. The contract is for Rs 1 lakh, and the supplier engages another outdoor caterer for Rs 60,000.

In that example, the subcontracted caterer charges central tax of Rs 5,400 at 9 per cent, while the main supplier charges the customer central tax of Rs 2,500 at 2.5 per cent. The notification limits the main supplier’s credit on the purchased catering service to Rs 1,500, or 2.5 per cent of Rs 60,000, rather than Rs 5,400.