Unused ITC for Hotel after GST Change

NO — the old ITC balance cannot be used once the hotel shifts to 5% GST without ITC.
The unutilised ITC must be reversed as per GST law.

Frequently Asked Questions (FAQs) posted by Ministry of Finance on the decisions of the 56th GST Council held in New Delhi, stated in Question No. 8 that "The GST rate has been reduced on my outward supply of goods/services made on or after 22nd September, 2025 but I already have ITC of GST in ledger that accrued on account of higher rate. Can I continue to use such credit?"

Answer : The input tax credit once duly availed in e-credit ledger can be used for discharge of any output tax liability in terms of provisions of section 49(4) of CGST Act and rules made thereunder.

As Hotel Room Charges arent exempted from GST, we can discharge the output tax liablities from previous accumulated e-credit. Attaching the link for reference.

FAQs on GST Change

Yes, only if the hotel continues to have:

Restaurant @ 18%

Banquet / conference services with ITC

Any other taxable outward supply eligible for ITC

If all supplies are 5% without ITC, accumulated credit becomes blocked from utilisation, though not forcibly reversed (except capital goods).

Thanks for the clarification. Just need an example for better clarification.

Let's say Room Charges @ 5% (no ITC), Restaurant @ 5% (no ITC), Banquet @ 18% (ITC), Cab Charges @ 18%(ITC). So we can offset all the GST Liabilities if some services are under ITC and some don't OR Apportionment of ITC needs to be done.

After GST 2.0, hotel accommodation moved to 5% WITHOUT ITC eligibility from September 22, 2025. Any ITC you accumulated before that date at higher rates needs careful treatment.

Here is what to do with the unused ITC balance:

1. Identify the attributable portion: Calculate how much of your accumulated ITC relates to hotel accommodation inputs (food supplies, housekeeping materials, maintenance services).

2. Reverse the attributable ITC: Under Rule 42 of CGST Rules, ITC attributable to exempt or blocked supplies must be reversed. Report this reversal in GSTR-3B Table 4(B).

3. Retain the rest: Any ITC NOT attributable to the 5% accommodation supply (e.g., for banquet or restaurant supply that still has ITC eligibility) can continue to be used.

4. Capital goods: For capital goods used in both ITC-eligible and non-eligible supply, apply proportionate reversal under Rule 43.

The practical step is to compute the ITC balance as of September 21, 2025, split by supply type, and reverse the blocked portion in the October 2025 return or the period when you identified it.

This [GST payment and compliance guide](https://taxgarden.in/blog/how-to-pay-gst-online-challan-payment-modes-india-2026) covers ITC adjustments and how to handle cash ledger and electronic credit ledger correctly.