Real Estate Sector Gets Relief as Supreme Court Allows Input Tax Credits on Construction Costs
The Supreme Court has ruled in favor of the real estate sector, allowing companies to claim input tax credits (ITC) on construction costs for commercial buildings meant for renting purposes.
Real EstateInput Tax CreditsConstruction CostsGstSupreme CourtReal EstateOct 03, 2024
The court also upheld the constitutional validity of Sections 17(5)(c) and (d) and ruled that a functionality test must be applied on a case-by-case basis to determine if a building qualifies as a plant for tax purposes. Tax experts have welcomed the decision, saying it brings much-needed clarity to the GST law concerning ITC on immovable property. The ruling is expected to have a positive impact on several industries, including airports, ports, warehousing, hotels, and real estate.
The Supreme Court's recognition that malls can, in specific instances, be classified under Plant and Machinery introduces a more flexible interpretation, opening up opportunities for businesses to explore ITC eligibility on construction-related inputs.
The real estate industry should carefully evaluate the implications of this ruling on ITC eligibility for outward supplies related to rental income. Given the SC's decision, it would be prudent for the GST Council to issue clarifications allowing real estate players to claim ITC on rental income.
This ruling is also expected to help reduce rental costs, as ITC would no longer be a financial burden for the industry. However, it is crucial to note that this ruling applies solely to rental income, and industry participants should undertake a thorough review of ITC eligibility to ensure compliance and maximize benefits.
Frequently Asked Questions
What is the significance of the Supreme Court's ruling on input tax credits for the real estate sector?
The ruling allows real estate companies to claim input tax credits on construction costs for commercial buildings meant for renting purposes, providing relief to the sector.
What is the functionality test, and how will it be applied?
The functionality test is a case-by-case basis assessment to determine if a building qualifies as a plant for tax purposes. It will be applied by considering factors such as the building's purpose, the nature of the business, and its essentiality in facilitating the provision of services.
How will this ruling impact the real estate industry?
The ruling is expected to have a positive impact on the real estate industry, allowing companies to claim input tax credits on construction costs and reducing rental costs.
What is the GST Council's role in this ruling?
The GST Council should issue clarifications allowing real estate players to claim input tax credits on rental income, given the Supreme Court's decision.
What is the time limit for claiming input tax credits for the period up to 2022-23?
The time limit for claiming input tax credits for the period up to 2022-23 has already passed. However, industry players can still claim input tax credits for FY 2023-24 until November 30.
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