Impact of ITC Removal on Commercial Real Estate

A significant amendment to the Goods and Services Tax (GST) laws, effective from July 1, 2017, has caused concern among commercial real estate companies. The retrospective change removes the eligibility for entities involved in constructing commercial buildings, warehouses, and similar properties to claim Input Tax Credit (ITC) on construction costs. This has particularly affected sectors like commercial leasing and hospitality, where claiming ITC on goods and services used in construction was crucial in reducing GST liabilities.

The change comes in light of the Supreme Court's decision in the Safari Retreats case, where the court allowed ITC for construction costs by classifying buildings as "plant" under the GST Act. However, the recent amendment modifies the terminology from "plant or machinery" to "plant and machinery," following a decision by the GST Council, disallowing ITC for commercial real estate companies constructing buildings for rental purposes.

Vimal Nadar, Head of Research at Colliers India, notes that this revision, as introduced in Budget 2025, clarifies the definition of "plant and machinery," impacting commercial real estate firms. The extent of the impact depends on whether these companies have been claiming ITC since 2017 or began doing so after the 2024 court ruling. The amendment brings much-needed clarity regarding the eligibility for claiming ITC in the commercial real estate sector.