Input tax credit (ITC) is a fundamental feature of the GST regime, but it is subject to significant restrictions under Section 17(5) of the CGST Act. One of the most contentious restrictions relates to the construction of immovable property for own business use.
This article explains the ITC restrictions on construction of immovable property.
Section 17(5)(c): Works Contract Services
Under Section 17(5)(c) of the CGST Act, 2017 , ITC is blocked on works contract services when supplied for construction of an immovable property, except when it is an input service for further supply of works contract service.
This means that a contractor can claim ITC on works contract services received for use in providing another works contract service, but a business constructing an immovable property for its own use cannot claim ITC.
Section 17(5)(d): Goods or Services for Construction
Under Section 17(5)(d) , ITC is blocked on goods or services received for construction of an immovable property on one's own account, even if used in the course or furtherance of business. This includes capital goods and inputs used in construction.
The Plant and Machinery Exception
ITC is available on goods or services used for construction of plant and machinery . The term "plant and machinery" is defined narrowly and excludes land, buildings, and other civil structures.
The Safari Retreats Judgment
The Supreme Court in Safari Retreats Pvt. Ltd. (2024) held that buildings can qualify as "plant" if they satisfy the functionality test — that is, if the building is essential for the functioning of the business. The court allowed ITC on construction costs for a shopping mall that was let out to tenants.
However, this judgment has been retrospectively overridden by a legislative amendment in 2025, which clarifies that ITC is blocked on all construction of immovable property, including buildings, unless they qualify as plant and machinery under the narrow definition.
ITC on Construction for Renting
The government is examining industry concerns about the denial of ITC on construction of immovable property "not for own use" but for renting out. Currently, ITC is allowed only if the construction is for further supply of works contract service or for plant and machinery.
Compliance Considerations
- Determine whether the construction qualifies as plant and machinery.
- Maintain proper documentation for all construction costs.
- Consider the impact of the retrospective amendment.
- Seek professional advice for complex construction projects.
Conclusion
The ITC restrictions under Section 17(5)(c) and (d) significantly impact businesses constructing immovable property for their own use. The Safari Retreats judgment provided temporary relief, but the legislative amendment has clarified the position. Businesses should carefully assess ITC eligibility.
At Anuj Desai & Associates, we provide expert advisory services on GST ITC restrictions for construction projects. Our team can help you determine ITC eligibility and respond to GST demands.
For a confidential consultation, contact us at office@anujdesaiassociates.com or call 9619456656. Visit our website at https://anujdesaiassociates.com or connect with our founder on LinkedIn at linkedin.com/in/ca-anuj-desai-122547230.