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ITC on construction of Immovable property and Planning

This article will help you to plan that on what grounds, on what circumstances and on what type of goods or services, ITC can be availed.

There is a lot of confusion faced by managements of Hotels, Offices, Residential complexes, theatres etc regarding Input Tax Credit on construction of immovable property. I hope the article will bring clarity on this issue.

Section 17(5)(c) & (d) can clear all doubts regarding this issue.

Section 17(5)(c) states “ITC on works contract services when supplied for construction of an immovable property ( other than plant & machinery) except where it is an input service for further supply of works contract services” &

Section 17(5)(d) states “goods or services or both received by a taxable person for construction of an immovable property (other than plant & machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.”

It also specifies that “construction includes reconstruction, renovation, additions or alterations or repairs to the extent of capitalization for said immovable property”.

Let us understand these ingredients/ inputs with examples:

Suppose Mr. ‘X’ wants to build an office for rendering consultancy services. He gives contract to builder for construction of furnished office structure along with material. This is what we call works contract, which is considered as service under GST (as per schedule II read with section 7). Now, if the contractor raises bill and charges GST, then Mr. ‘X’ will not be able to take input tax credit due to the provisions u/s 17(5)(c).

But in the same case if Mr. ’X’ is registered as a builder instead of a consultant, then he can take credit of such contract.

Planning:

Now coming to the earlier scenario, if Mr. ‘X’ purchase goods for construction and gives the contract of construction to contractor for construction only, then can he take credit of both- ITC on goods as well as on contract for construction?

This planning has been blocked by section 17(5)(d) because it clearly restricts ITC on goods or services for such constructions.

So, What to do for availing credit???

Actually nobody can take credit on whole receipts either as work contract or individual purchases. But there is scope and justification to take credit of loose furniture, cameras, fire or other alarms, ACs (except Centralized AC plant), Computer & networking, temporary office structure inside the building, electrical parts (if not embedded in building) etc used in building.

Conclusion

A person can only take credit of item which is used in construction of immovable property but which is not naturally embedded in property. If anything is used in such construction and generally embedded in building then ITC will not be available.

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View Comments (9)

  • i have given my land to builder for development of property .builder will build commercial premises and residential flats on the building. Now some part of constructed commercial premises will be given to me by builder as a consideration of land.It appears
    that the builder will charge me gst for construction services.i am a businessman and Can i take input credit for the gst paid to builder's services?

  • Dear Sir,
    We are preparing our new office and works included Civil, AC , Plumbing & Interior work ,we are purchasing all type of raw material like Plywood, Wood, Stone Granite, Saria ETC. on our registered GST No.
    so can we take input credit on these purchase we are engaged in interior contractor business.

  • Mr. X is engaged in the business of wholesale and has made advance for purchase of one commercial prooperty and paid cgst and sgst of 100000 each. Whether he can claim input tax credit or not?

  • Hello Sir.
    Thanks for the article. I am accountant of a film city company. Our company will construct sets (like movie sets) & after the shooting is over our company will remove those sets. So can we take ITC on material used for those sets?
    Also when I used veneer sheets for office (just nails are used to fit those veneer sheets & can be removed), Can we taje credit on Those?

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