Blocked Input Tax Credit (ITC) on Construction Activities- Deterrence to Economic Development of the Country

Globe is evidencing an unprecedented health hazard in the form of this pandemic. All economies of the world have bowed down on knees. Role of China is being viewed in suspicion. At this time, India can be a favored destination for converting to next manufacturing hub for the world. When new manufacturing facilities are to be created, which require lot of investment. If there would continue to be non-availability of Input Tax Credit on generating immovable properties to be used in the course or furtherance of business, then we are sending a negative signal to the business world.

Following are the credits which are not available as adjustment against output supply and blocked-:

Sec 17(5) of CGST Act, 2017

(c) Works contract services when supplied for construction of an immovable property;

(d) Goods or services or both received by a taxable person for construction of an immovable property on his own account including when such goods or services or both are used in the course or furtherance of business.

Therefore, it is considered to be most imperative that these provisions may be put to abeyance for next two years so as to incentivize the investment into the businesses to enhance the economic activities. These enhanced economic activities will generate more taxes for the exchequer. So, increasing tax revenue does not necessarily require increase in tax rate or blocking of input tax credit. Today ironically, in India, we are more concerned on taxes rather than focusing on increasing economic activities on which taxes are levied.

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March 2021