Summary: The Goods and Services Tax (GST) Council, during its 56th meeting, has recommended a significant tax rate reduction for specific hotel accommodation services. As of September 22, 2025, the GST rate on hotel rooms with a value of supply up to Rs.7,500 per unit per day has been reduced from 12% to 5%. This lower rate, however, comes with a key condition: it is available without Input Tax Credit (ITC). The GST Council’s FAQs clarify the implications of this change for registered businesses in the hotel industry. According to the guidance, any hotel providing accommodation at this reduced rate is required to reverse the credit of input tax on goods and services used for such supplies. This is because these services are now treated similarly to exempt supplies, mandating a proportionate ITC reversal under Section 17(2) of the CGST Act. Consequently, hotels where all rooms fall under the Rs.7,500 price point cannot claim future ITC and must reverse the balance standing in their electronic credit ledger as of September 22, 2025. This also applies to a proportionate reversal of ITC on capital goods used for these services.
The GST Council, in its 56th meeting, recommended a reduction in the tax rate on specific accommodation services. In particular, hotel accommodation services with a value of supply of a unit of accommodation up to ₹7,500 per unit per day have been reduced from 12% to 5% without Input Tax Credit (ITC).
Requirement of ITC Reversal Due to Rate Reduction
The issue arises whether a registered person in the hotel industry is required to reverse ITC on account of this change. The clarifications issued through the Frequently Asked Questions (FAQs-2) on the decisions of the 56th GST Council Meeting dated 16th September 2025 provide guidance on this matter.
- Question No. 9 of FAQ-2 clarifies that credit of input tax charged on goods or services used partly for supplying such accommodation services (taxable at 5% without ITC) and partly for other taxable supplies shall be reversed. Such supplies taxable at 5% without ITC are to be treated on par with exempt supplies, and accordingly, proportionate ITC reversal is required under Section 17(2) of the CGST Act, 2017 read with the relevant Rules.
- Similarly, FAQ-1 issued on 3rd September 2025 (Question No. 9) also provides that ITC balance lying in the Electronic Credit Ledger must be reversed in such cases. The clarification states:
“The ITC can be utilized to discharge outward liability for supplies made up to 21st September 2025. However, for supplies made on or after 22nd September 2025, when the rate change comes into effect, ITC will be required to be reversed as per the provisions of the CGST Act, 2017.”
- Conclusion
Accordingly, hotels where all rooms are priced below ₹7,500 per unit per day:
- Cannot avail ITC going forward.
- Must reverse the ITC balance standing in the electronic credit ledger as on 22nd September 2025.
- Must also carry out proportionate reversal of ITC on capital goods used for such accommodation services.
Sources:
Frequently Asked Questions-2 (FAQs-2) on the decisions of the 56th GST Council held in New Delhi
Frequently Asked Questions (FAQs) on the decisions of the 56th GST Council held in New Delhi
56th Meeting of the GST Council 3rd September, 2025 PRESS RELEASE
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Disclaimer: This article is intended solely for informational and academic purposes. It should not be construed as legal or professional advice.
Author Bio
How are these services treated similarly to exempt supplies? Exempt supply means we shouldnt be charging GST to customers, and no ITC.
Please check Question No. 9 of FAQ-2.
What about of ITC if 5% and 18% both rates apply?
In that case Propotionate reversal of ITC is required
in hotel how to calculate propotionate reversal to be be calculated. whether entire ITC as on 22/09/2025 is to be reversed.