The government’s proposal to amend the Finance Bill 2025 with respect to input tax credit (ITC) on construction expenses for leased properties is expected to impact real estate developers of commercial properties.
The Supreme Court ruling of October 2024 allowed ITC on such leased properties, providing financial relief to property developers by lowering their cost of commercial leasing. Following the ruling, tax authorities reassessed cases, leading to the issuance and withdrawal of multiple tax demands.
“However, the government, citing concerns over revenue loss, introduced a retrospective amendment in the Finance Bill 2025, overriding the Supreme Court’s interpretation. Effective July 1, 2017, this amendment explicitly disallows ITC on immovable property construction, even if the property is leased and generates taxable revenue,” said Amit Maheshwari, partner AKM Global, a tax and consulting firm.
According to him, the amendment to Section 17(5)(d) of the CGST Act would reinstate the original restriction, ensuring a uniform interpretation and preventing commercial properties from being classified as “plant and machinery”. But this was expected after the recent Goods and Services Tax Council meeting, he added.
The change reverses the relief granted by the Safari Retreats judgment, implying that tax demands previously dropped may now be reinstated and fresh liabilities could arise for businesses that availed ITC based on the ruling.
The retrospective nature of the amendment raises concerns about tax predictability, investor confidence and compliance burdens, potentially leading to fresh litigation and challenges for businesses in the real estate and leasing sectors, according to experts.
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