GST Council May Ease ITC Rules for Realty, Hotels

India’s Goods and Services Tax (GST) Council may consider a package of changes to input tax credit (ITC) rules covering real estate, construction, hospitality, tourism, telecom and infrastructure as part of the next phase of GST reforms. The proposals could allow credit on selected business expenses that are currently blocked, including certain pipelines, telecom towers, hotel-related services and vehicles, potentially lowering project costs and reducing tax cascading.

The measures remain proposals and have not been approved by the GST Council. Business Standard reported that the Council could consider the changes during its upcoming meeting, while subsequent reporting said the 57th GST Council meeting has been rescheduled from October 7 to October 8, 2026. The precise scope of any final recommendations will depend on what the Council approves and the legislative or notification changes that follow.

Key takeaways

• The GST Council may consider widening input tax credit (ITC) for several business expenses.
• Proposed relief could cover pipelines outside factory premises and telecom towers.
• Hospitality proposals could extend ITC to certain hotel rooms priced up to ₹7,500 per night, restaurants, catering, spas, gyms and related services.
• Contractors and developers could receive wider credit on selected vehicles and insurance costs.
• Government-owned companies executing projects for one another could receive greater certainty by using the contracted price rather than a substituted valuation.
• The proposals seek to address tax cascading and reduce the amount of GST becoming a project cost.
• The existing CGST framework generally blocks ITC on construction of immovable property on a taxpayer’s own account, subject to specified exceptions.
• The proposals come after years of industry debate over blocked ITC and the treatment of capital-intensive assets.
• The Supreme Court’s Safari Retreats case has added another layer to the debate, although subsequent legislative changes narrowed the practical effect of that ruling.
• None of the reported relief measures should be treated as effective until formally recommended and implemented.

What is the GST Council considering?

The proposals being discussed represent a shift in the focus of GST reform.

The first major phase of India’s recent GST changes concentrated heavily on rate rationalisation. The next phase is increasingly focused on how the tax system works for businesses, including compliance, refunds and input tax credit.

Input tax credit is at the centre of this process.

Under the GST system, a business generally gets credit for GST paid on eligible inputs and uses that credit against GST payable on its own taxable supplies. This prevents tax from repeatedly becoming embedded in the price as goods and services move through the supply chain.

But the law also contains several blocked-credit provisions.

Section 17(5) of the Central Goods and Services Tax Act specifically restricts credit for several categories, including certain works-contract services and goods or services used for construction of immovable property on a taxpayer’s own account.

The proposals under consideration would selectively loosen some of those restrictions.

Why ITC matters for construction and infrastructure

The basic issue is straightforward.

A large construction or infrastructure project can involve enormous amounts of GST paid to contractors, equipment suppliers and service providers.

If the recipient cannot claim that GST as ITC, the tax effectively becomes part of the project’s cost.

That can increase the amount of capital required to build an asset.

For a small business expense, the impact may be manageable.

For a refinery, pipeline network, telecom infrastructure project, hotel or large commercial development, the amounts can become substantial.

Business Standard reported that the proposed changes could therefore reduce tax costs for capital-intensive industrial and infrastructure projects.

The policy question is whether certain assets currently treated as immovable property should receive different treatment when they function as business equipment.

Pipelines could move closer to the ITC net

One of the proposals concerns pipelines laid outside factory premises.

Under the current framework, pipelines outside factory premises are excluded from the definition of “plant and machinery” for GST purposes. The CGST framework also specifically blocks credit in several construction-related situations.

The proposed approach would recognise that some pipelines are essential operating assets rather than conventional buildings or civil structures.

Consider an oil refinery.

The refinery may have a large network of pipelines transporting products between processing units and locations outside the factory boundary.

The pipeline itself can be fundamental to the business operation.

Yet its tax treatment can prevent the business from obtaining credit that would otherwise be available for many operating inputs.

The proposal could therefore affect sectors including:

• Refining
• Petrochemicals
• Fertilisers
• Gas distribution
• Water infrastructure
• Other pipeline-dependent industries

Business Standard said the pipelines can represent a substantial portion of capital expenditure in some of these sectors.

If approved, the change could reduce the amount of GST embedded in infrastructure investment.

Telecom towers could also receive relief

Telecom infrastructure is another major area under consideration.

Telecom towers are physically fixed to the ground, which has contributed to disputes over whether they should be treated as immovable property for ITC purposes.

The proposed approach would place greater emphasis on their economic function.

A telecom tower is used to support antennas and enable delivery of telecom services.

Financial Express reported that the proposal could treat towers as equipment used in the telecom business while treating the underlying land as a site rather than as business premises.

This distinction could be important for India’s telecom operators and tower companies.

Telecom networks require continuous capital expenditure.

Operators and infrastructure companies regularly spend on towers, fibre, ducts, equipment and network expansion.

Even a relatively small change in the tax treatment of each asset can have a meaningful effect when multiplied across thousands of sites.

Hospitality could see one of the biggest changes

The hospitality industry is another major focus of the reported proposals.

Hotel accommodation priced at up to ₹7,500 per night currently attracts a 5% GST rate without ITC, following the rate change recommended by the GST Council in 2025.

The government had reduced the rate from 12% with ITC to 5% without ITC for hotel accommodation in this category. A parliamentary answer confirmed that the change was recommended at the GST Council’s 56th meeting.

The proposed reform could partially reverse the problem created by the “without ITC” structure.

Reports indicate that ITC could be permitted where services are bought and resold in the same line of business.

That could include hotel accommodation sold through intermediaries such as travel platforms and tour operators.

Why the hotel example is complicated

Consider a hotel room priced below ₹7,500.

The hotel buys various taxable inputs and services.

A travel intermediary then sells the room to a customer.

If GST is charged at different points without corresponding credit, some of the tax paid by businesses can effectively become embedded in the cost.

The proposal is intended to reduce that cascading effect.

Financial Express reported that the proposed changes could allow ITC for hotel rooms below ₹7,500 and associated services, with the objective of creating a more consistent tax treatment across direct bookings, aggregators and tour operators.

The impact would extend beyond hotel room rates.

Restaurants, spas and gyms could be included

The reported proposal could also cover services such as restaurants, outdoor catering, beauty treatments, health services and wellness activities.

For example, a hotel or resort may operate:

• A restaurant
• A spa
• A gym
• Wellness services
• Catering facilities

If the hotel purchases services or inputs for providing those taxable services to its guests, allowing credit could reduce the amount of tax that becomes a cost.

Business Standard reported that hotels and resorts running restaurants, spas and gyms could receive credit on certain services procured for their guests.

That could change the economics of integrated hospitality properties.

ITC could help hotels reinvest

The potential impact is not necessarily limited to lower consumer prices.

Businesses can respond to lower tax costs in several ways.

They may reduce prices.

They may improve margins.

They may increase investment.

Or they may use the additional cash flow for expansion and upgrades.

For the hotel industry, the third option could be particularly important.

Hotels are capital-intensive businesses.

A new property requires substantial investment in land, construction, furniture, equipment, technology and services.

Existing properties also require continuous refurbishment.

If the tax system makes some inputs more expensive because ITC is blocked, the effective cost of expanding the hotel network increases.

Industry representatives have therefore argued that a more predictable ITC framework could encourage investment, including in smaller cities and tourism destinations.

Construction and real estate remain the difficult part

The most complicated part of the debate is real estate.

GST law has historically restricted credit on construction of immovable property, particularly where the property is constructed on the taxpayer’s own account.

Section 17(5)(d) specifically covers goods or services received for construction of an immovable property other than plant and machinery on the taxpayer’s own account, including when used in the course or furtherance of business.

That means a company cannot simply assume that because a building is used for taxable business activity, all GST paid during its construction automatically becomes credit.

The issue has been the subject of extensive litigation.

The Safari Retreats case changed the debate

The Supreme Court’s 2024 ruling in Chief Commissioner of Central Goods and Services Tax v. Safari Retreats became a landmark case in the ITC debate.

The dispute involved commercial property constructed for letting out.

The taxpayer argued that GST paid on construction should be available as ITC because the completed property was being used to generate taxable rental income.

The Supreme Court examined the relationship between the blocked-credit provisions and the concept of a building functioning as a “plant”.

The judgment created significant expectations among real estate and hospitality companies.

But the legal position subsequently became more complicated.

Parliament subsequently amended the law

The government later amended the relevant terminology in Section 17(5)(d), replacing “plant or machinery” with “plant and machinery” retrospectively from July 1, 2017.

The amendment was designed to address the interpretation arising from the Safari Retreats judgment and reinforce the restriction around immovable property.

The Supreme Court subsequently dismissed the government’s review petition in 2025, leaving the litigation history intact, but the retrospective legislative amendment affected the practical reach of the earlier ruling.

This background is important because the latest ITC proposals should not be interpreted as a blanket reopening of all construction-related credit.

The reported proposals appear to target specific categories and business situations.

Contractors could get relief on vehicles and insurance

Construction and infrastructure companies also have substantial recurring costs beyond the physical construction materials.

Vehicles, insurance and other site-related expenses can form a meaningful part of operating expenditure.

The proposals reported by Business Standard include wider credit for vehicles and insurance for contractors and developers.

Separately, broader GST reform proposals reported by multiple outlets could extend ITC to vehicles with seating capacity of up to 13 persons, along with related insurance, servicing, maintenance and leasing or hiring.

These changes would still be subject to the final wording approved by the Council.

The important point is that the reform agenda is looking beyond conventional raw materials and toward a broader definition of legitimate business expenditure.

Government-owned companies could receive valuation certainty

Another proposal concerns transactions between government-owned companies.

Government-owned entities are generally treated as related parties for GST valuation purposes.

That can create situations where the contracted price between two government-owned companies is replaced or adjusted under related-party valuation rules.

The reported proposal would give greater sanctity to the actual contracted price when government-owned companies execute projects for one another.

Business Standard said this could provide greater certainty for public housing, development and infrastructure contracts.

For large public projects, certainty over the taxable value can be as important as the tax rate itself.

Uncertainty can lead to disputes, delayed payments and additional working-capital requirements.

This is part of a wider GST 2.0 reform push

The ITC proposals are not being considered in isolation.

Finance Minister Nirmala Sitharaman has said the next phase of GST reforms would focus on process reforms, including input tax credit rules and e-invoicing.

The government is also examining measures aimed at simplifying registration, speeding refunds and making enforcement more technology-driven.

Other reported proposals include protecting genuine buyers from losing ITC because a supplier further up the chain failed to deposit tax, provided the buyer was not involved in fraud.

That would address a longstanding concern for businesses.

A company can conduct a genuine transaction, receive an invoice and pay the supplier, yet still face difficulty if the supplier fails to comply with GST requirements.

A system that places recovery responsibility primarily on the defaulting supplier could reduce that uncertainty.

The proposed changes could unlock working capital

ITC is not simply an accounting benefit.

For businesses, tax credit can affect working capital.

If GST paid on inputs cannot be recovered, the business effectively finances that tax cost until the final product or service is sold.

In capital-intensive industries, the amount can become substantial.

Allowing more legitimate credits could therefore release cash that businesses can use elsewhere.

Economic Times reported that the wider GST 2.0 proposal could also consider ways to unlock accumulated credits and refund certain taxes paid on plant and machinery and input services over time.

That could turn locked-up tax balances into usable capital.

For companies planning large investments, the effect could be similar to a reduction in the upfront tax component of a project.

But ITC relief does not automatically mean cheaper prices

One important misconception needs to be avoided.

If the GST Council approves wider ITC, consumers will not necessarily see an equivalent reduction in prices.

The effect depends on the business.

A company could pass some savings to customers through lower prices.

It could retain some through improved margins.

It could also reinvest the money into expansion, technology or service quality.

In hospitality, for example, ITC could improve the economics of a hotel even if room prices do not fall by the entire value of the recovered tax.

Therefore, the more immediate impact may be on business costs and investment economics, rather than a one-for-one reduction in consumer prices.

Potential sector impact

Sector	Reported proposal	Potential impact
Real estate	Selective rationalisation of blocked ITC	Could reduce tax cost in eligible business structures
Construction	Wider credit on selected expenses	Lower project and operating costs
Hospitality	ITC for certain hotel and related services	Lower tax cascading and improved hotel economics
Tourism	Credit for selected services	Potentially lower input costs
Telecom	ITC for towers	Lower network infrastructure cost
Refining & petrochemicals	ITC for eligible outside-factory pipelines	Lower capital expenditure burden
Fertilisers & gas	Pipeline credit	Reduced embedded GST cost
Infrastructure	Wider credit on selected assets and expenses	Potential working-capital benefit
Government projects	Contracted-price certainty between government entities	Lower valuation disputes

The proposals are reported possibilities and are not final GST Council decisions.

What businesses should watch

Businesses should be careful not to treat the reported proposals as current law.

The GST Council can accept, modify or reject proposals.

Even after a Council recommendation, implementation may require amendments to the CGST Act, rules, notifications or other administrative steps.

That is especially important for Section 17(5), where legislative wording determines whether a particular expense qualifies for credit.

The final language will therefore matter as much as the headline announcement.

What could change if the proposals are approved?

The broader direction would be significant.

GST would move closer to a system where the question is not simply whether an asset is physically attached to the ground, but whether it represents a legitimate business input that should qualify for credit.

That could be particularly relevant for modern infrastructure.

Telecom towers, pipelines and sophisticated industrial networks can be physically fixed to land while functioning primarily as operating equipment.

A more functional approach could reduce disputes over classification.

At the same time, the government would need safeguards to prevent businesses from claiming credit for assets or expenses that genuinely have personal, non-business or otherwise restricted use.

The challenge will be balancing wider credit with revenue protection.

The Bigger Picture

The latest ITC proposals point to a second phase of GST reform in which the government is trying to address some of the friction created by the original system. Rate rationalisation can reduce the headline tax burden, but blocked credits, valuation disputes and accumulated working capital can still increase the effective cost of doing business.

For real estate, construction and hospitality, the issue is particularly important because these sectors are highly capital-intensive. For telecom, refining, petrochemicals and infrastructure, the proposed treatment of towers and pipelines could influence the economics of future network and capacity expansion.

The bigger policy shift is therefore from GST as a rate system to GST as a business operating system. If the Council approves carefully targeted ITC relief while maintaining safeguards against abuse, the reforms could reduce cascading taxes, improve cash flows and make large projects easier to execute.

Looking Ahead

The immediate question is what the GST Council ultimately approves. The latest reports indicate that the 57th meeting has been moved to October 8, 2026, and businesses will need to wait for the Council’s recommendations and subsequent legal changes before treating any of these measures as effective. Until then, the reported ITC relief for hotels, pipelines, telecom towers, vehicles and other categories remains prospective rather than a change in current tax liability.

For India’s capital-intensive sectors, however, the direction of the debate matters. A wider and more predictable credit mechanism could reduce embedded tax costs and free working capital for expansion, while a more functional treatment of business assets could reduce long-running classification disputes. The eventual impact will depend on the exact statutory language, eligibility conditions and safeguards attached to the final reforms.

FAQs

What is input tax credit under GST?

Input tax credit allows an eligible registered business to offset GST paid on qualifying purchases and inputs against GST payable on its own taxable supplies. The mechanism is designed to reduce cascading taxation through the supply chain.

Will hotels below ₹7,500 automatically get ITC?

No. The reported proposal would potentially change the existing 5% GST-without-ITC treatment for hotel accommodation priced at up to ₹7,500 per night. It is not yet an approved change.

Could real estate companies get GST credit on construction?

The reported proposals concern rationalisation of ITC restrictions in specific areas. They do not establish a blanket right for all real estate construction expenditure. Section 17(5) currently contains significant restrictions on construction-related ITC.

When will the new ITC rules take effect?

No effective date can be stated yet. The GST Council must first make a recommendation, after which the required legislative, notification or rule changes would need to be implemented.