Why Has GST ITC Relief Been Recommended?
Input Tax Credit (ITC) is a key feature of GST because it helps reduce the cascading effect of taxes. However, where a service is taxed at a concessional rate of 5% without ITC, the supplier generally cannot claim credit in the manner available under the normal credit mechanism.
This restriction can create a tax cost at successive stages of the supply chain, particularly where one business purchases a service and resells the same category of service to its customers.
To address this issue, the 57th GST Council meeting recommended a limited relaxation in ITC restrictions for certain reselling services.
The proposal covers specified hotel accommodation, restaurant and outdoor catering, and gym/fitness services. However, the recommendation does not permit unrestricted ITC on all expenses incurred by these businesses.
1. Which Services Are Covered Under the Proposed ITC Relief?
According to the GST Council FAQ, the proposed relaxation covers the following categories:
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Hotel accommodation services: Accommodation up to ₹7,500 per unit per day.
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Restaurant services: Specified restaurant services covered by the recommendation.
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Outdoor catering services: Eligible outdoor catering services.
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Gym and fitness services: Specified gym/fitness services.
The proposed relaxation is intended for resellers of these services who face cascading tax costs because of ITC restrictions at successive stages.
Businesses should verify the applicable rate entry and conditions before claiming any benefit. The inclusion of a service category in the recommendation does not automatically make every related expense eligible for credit.
2. What Does “Same Category of Input Service” Mean?
The most important condition is that the ITC relief is limited to an eligible input service of the same category used to supply the same category of output service.
In simple terms, the proposal addresses a situation where a business obtains a service and supplies that same category of service onward to its customer.
For example, an eligible reseller of hotel accommodation may incur GST on an input hotel accommodation service that is used to provide hotel accommodation to its customer. Subject to the final provisions and other ITC conditions, this is the type of same-category transaction the proposal seeks to address.
The same principle applies to the other specified service categories, where the relevant conditions are met.
The proposed relief should not be read as a general permission to claim ITC on every purchase made by a hotel, restaurant, catering business or gym.
3. Will All ITC Become Available for Services Taxed at 5% Without ITC?
No. The proposed relief is limited.
The Council FAQ specifically clarifies that the proposal does not allow all ITC in cases where GST is charged at 5% without ITC.
The relaxation is restricted to eligible ITC on the same category of input service used to supply the same category of output service. The FAQ refers to a similar limited approach already allowed in specified contexts, including passenger transportation, tour operator services and renting of motor vehicles services.
Therefore, businesses should distinguish between:
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Eligible same-category input services covered by the proposed relaxation;
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Other input services used in business operations; and
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Goods, overheads or other expenses that do not fall within the proposed category-specific relief.
The eligibility of each credit must be determined under the applicable law and the final notified conditions.
4. Practical Examples of the Proposed ITC Relief
Example 1: Hotel accommodation reseller
A business resells eligible hotel accommodation to its customers. It incurs GST on an eligible input hotel accommodation service used to supply the same category of output service.
If the transaction falls within the notified conditions, the proposed relaxation may permit the specified input-service ITC, subject to the applicable restrictions.
The ₹7,500 per unit per day limit is relevant to the specified hotel accommodation category covered by the recommendation.
Example 2: Restaurant service reseller
A business supplies restaurant services to customers and uses an eligible input restaurant service in supplying the same category of output service.
The proposed relief may address the ITC restriction on that qualifying same-category input service, subject to the final legal provisions.
It does not automatically permit ITC on every purchase of food ingredients, equipment, rent, professional services or other business expenses.
Example 3: Gym or fitness service reseller
A business resells eligible gym/fitness services and incurs GST on a same-category input service used for supplying the same category of output service.
The proposed relaxation may apply to the qualifying credit, provided the transaction and the credit satisfy the applicable conditions.
Ordinary business expenses should not be treated as automatically eligible merely because the business supplies gym or fitness services.
These examples are illustrative and do not replace the final statutory conditions or notification.
5. What Should Businesses Do Before Claiming ITC?
Until the relevant legal changes are notified and become effective, businesses should avoid treating the recommendation as an immediately available entitlement.
Once the applicable provisions take effect, businesses should:
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Identify the exact category of their outward service.
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Check whether the inward service belongs to the same category.
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Establish that the input service is used to supply the corresponding output service.
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Verify the applicable GST rate and any condition restricting ITC.
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Maintain invoices, agreements and records establishing the connection between the input and output services.
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Confirm that all other statutory ITC requirements are satisfied.
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Review the final notification and applicable return-reporting requirements before availing credit.
A category-wise ITC reconciliation can help businesses distinguish qualifying credits from credits that remain restricted.
6. When Will the Proposed ITC Relief Apply?
The relaxation discussed in this article arises from recommendations made at the 57th GST Council meeting held on 8 October 2026.
The Council FAQ describes the proposed relaxation, but the recommendation alone should not be treated as confirmation that the amendment is already legally effective.
Businesses should check the relevant notification, its effective date and the final conditions before changing their ITC treatment or GST returns.
Conclusion
The proposed GST ITC relief is intended to address cascading taxation for resellers of specified hotel accommodation, restaurant, outdoor catering and gym/fitness services taxed at 5% without ITC.
The most important limitation is that the proposed credit is confined to eligible same-category input services used to supply the same category of output service. It is not a blanket relaxation of all ITC restrictions applicable to these businesses.
Businesses should carefully examine the nature of each input service and wait for, or verify, the applicable notification before claiming the proposed benefit.
Disclaimer: This article is for general information and educational purposes only. It summarises GST Council recommendations and does not replace the applicable Acts, Rules, notifications or circulars.