Industry Bodies Demand ITC for Real Estate Developers on Leased Commercial Assets

New Delhi, Feb 19 (KNN) Industry bodies Ficci and Assocham have urged the Finance Ministry to allow real estate developers to claim Input Tax Credit (ITC) under the Central Goods and Services Act (CGST) for commercial assets constructed for leasing purposes.

In their representations, the associations argued that granting ITC would not have a significant revenue impact but would help maintain the credit chain, thereby stimulating growth in the real estate sector and the broader economy.

The demand comes in response to a recent Budget proposal amending the CGST law retrospectively, which experts believe will override a Supreme Court ruling that had earlier permitted ITC claims on leased assets.

Market analysts warn that this move could negatively impact real estate firms involved in constructing and leasing commercial properties such as office complexes, shopping malls, and warehousing parks.

Ficci has requested the Finance Ministry to issue a clarification allowing ITC for immovable properties constructed specifically for leasing, aligning with the Supreme Court's decision in the Safari Retreats Private Ltd case.

The apex court had previously ruled that if a building is essential for leasing services, it could be classified as 'plant,' making it eligible for ITC under Section 17(5)(d) of the CGST Act.

The Budget amendment alters Section 17(5) by replacing the term 'plant or machinery' with 'plant and machinery.' This change, effective from July 1, 2017, aims to ensure that ITC on leased assets remains blocked despite past judicial rulings.

According to Ficci's estimates, India adds approximately 55-60 million square feet of commercial space annually. With a construction cost of Rs 2,500-2,800 per square foot before taxes, the resulting GST revenue from construction amounts to Rs 2,500-3,000 crore per year.

However, not all developers have availed ITC in past periods, reducing the potential revenue impact to Rs 900-1,100 crore annually. Tax expert Vivek Jalan noted that industry stakeholders demand ITC for leased properties while agreeing that ITC for self-use should remain blocked.

The proposed amendment requires approval from over 50 per cent of state legislatures, which could take 4-5 months post-enactment of the Finance Act 2025.

(KNN Bureau)