Vimal Nadar, Head of Research at Colliers India
There was an ongoing dispute between commercial real estate companies and the GST authorities with respect to claiming input tax credit (ITC) on construction costs including cement, steel, etc. This emerged from the ambiguity around the definition of plant and machinery as per CGST Act. Interestingly, the Supreme Court ruled in favour of the real estate companies making them eligible to claim ITC, in the latter part of 2024. However, the Government continued to contest this decree and had clearly indicated that they will ensure relevant amendment to override the ruling.
Budget 2025 has brought in this expected revision into effect by reviewing the definition of plant & machinery thereby disallowing commercial real estate companies who are into construction of buildings for rental purposes retrospectively. The extent of impact due to this amendment will depend upon the following factors:
- If these companies have been claiming input tax credit since 2017 and remained under dispute.
- If these companies calculated their tax liability without considering ITC until the court order in 2024 and then began considering ITC in their calculation.
- This change brings in clarity in the interpretation of ‘plant and machinery’ and the covenants related to claiming of ITC.