GST on Restaurants & Hotel Accommodation in 2026: New ITC Rules Explained

Quick Summary:

From 1 November 2026, restaurants and hotel accommodation providers can claim input tax credit (ITC) on certain services purchased from businesses in the same line of work. The change comes under GST Notification No. 06/2026–Central Tax (Rate), issued on 27 October 2026. The GST rate remains 5% for the covered services, but the rules now allow limited ITC that was previously unavailable. However, this benefit does not apply to every purchase made by hotels or restaurants.

What Are the New GST Rules for Restaurants and Hotels in 2026?

From 1 November 2026, eligible restaurants and hotel accommodation providers paying 5% GST can claim ITC on specified same-line services. Hotels face a 5% credit cap when the supplier charges a higher GST rate. Other ITC restrictions continue to apply.

Earlier, businesses operating under these 5% GST entries generally could not claim ITC on purchases used to provide their services.

The government has now relaxed this restriction for certain business-to-business transactions through Notification No. 06/2026.

For a detailed understanding of the new GST rules, Connect with Startup Movers. Our experts can guide you through your taxation and compliance requirements.

New GST Rules for Restaurants in 2026

Restaurants covered under the 5% GST entry, other than those at specified premises, can now claim ITC on qualifying restaurant services purchased from another eligible restaurant service provider.

For example, Restaurant A receives a qualifying restaurant service from Restaurant B to fulfil a customer order. If the purchase satisfies the notification conditions, Restaurant A may claim ITC on that service.

However, this does not mean restaurants can claim ITC on everything.

The new relaxation does not generally extend to:

Raw ingredients and groceries
Kitchen appliances and equipment
Furniture and interiors
Other purchases outside the permitted same-line service category

Therefore, restaurant owners must check the nature of the purchased service before claiming credit.

New GST Rules for Hotel Accommodation in 2026

Hotels supplying accommodation under the relevant 5% GST entry can also claim ITC on hotel accommodation purchased from another hotel accommodation supplier.

This can help businesses that arrange rooms through other hotels, including eligible accommodation resellers. However, the notification introduces an important restriction.

If the supplier charges GST above 5%, the recipient's ITC is limited to an amount calculated at 5% of the eligible purchase value.

Example: How the 5% ITC Cap Works

Suppose a hotel purchases accommodation from another hotel for ₹10,000.

Particulars	Amount
Accommodation purchase	₹10,000
GST charged at 18%	₹1,800
Maximum eligible ITC at 5%	₹500
GST remaining as cost	₹1,300

Although the supplier charges ₹1,800 GST, the recipient can claim only ₹500 under the specified conditions.

The remaining ₹1,300 becomes a business cost.

This example shows why hotels should review their purchase arrangements and supplier GST rates.

Restaurant vs Hotel ITC Rules: Key Differences

Particulars	Restaurants	Hotel accommodation
GST rate for covered services	5%	5%
Same-line ITC	Allowed	Allowed
Eligible purchase	Qualifying restaurant service	Hotel accommodation service
Specific 5% ITC cap	Not stated in this entry	Applies when supplier rate exceeds 5%
Other ITC	Generally restricted	Generally restricted

The distinction matters because the relaxation is not identical for both industries.

What Should Restaurant and Hotel Owners Do?

Businesses should review their GST treatment from 1 November 2026.

Check supplier invoices: Identify qualifying same-line purchases.
Review ITC eligibility: Do not claim credit on unrelated goods and services.
Update accounting records: Separate eligible and ineligible ITC.
Review supplier GST rates: Hotels should calculate the applicable credit cap.
Reconcile GST returns: Match eligible invoices with relevant GST records.

For further context, read our guide to GST Input Tax Credit New Rules 2026.

Conclusion

The new GST rules provide limited ITC relief to restaurants and hotel accommodation providers without changing their covered 5% GST rate. However, businesses must check eligibility carefully before claiming credit.

Need help understanding the new GST rules? Startup Movers provides GST advisory, accounting and compliance support to help businesses manage their GST obligations. Talk to an Expert Now.

Frequently Asked Questions (FAQs)

Yes. The GST rate remains 5% for restaurants covered by the relevant entry. The notification changes the ITC conditions, not the rate.

Not under this new relaxation. It specifically permits ITC on qualifying same-line restaurant services.

No. Under the covered 5% accommodation entry, eligible ITC is capped at the equivalent of 5% when the supplier charges a higher rate.

The revised provisions took effect on 1 November 2026.

No. Different GST entries may apply depending on the service, premises classification and applicable conditions.

Disclaimer: This content is published for informational and educational purposes only and should not be considered legal, tax, financial, or professional advice. Please consult a qualified professional before making any financial or business decisions. Startup Movers shall not be liable for any loss or damage arising from reliance on this content.