No ITC on project development services for immovable property construction

Pradeep Jain | Last updated: 09 January 2021

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Under GST, Input Tax Credit (ITC) is typically not available for services used in the construction of immovable property. This is due to Section 17(5) of the CGST Act, which restricts ITC for works contract services used in such constructions. Even if the property is intended for business use, like rental income, ITC is denied unless it's an input service for further works contract supply. While a High Court ruling suggested allowing ITC when GST is payable on rentals, the Supreme Court's decision is pending.

Construction services/works contract have always faced the wrath of lawmakers as far as credit is concerned under CENVAT rules. The same plight continues under GST - probably because works contract services result in the creation of immovable property, which is outside the purview of GST. As per

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FAQ :

Generally, no. ITC is not available for works contract services supplied for the construction of immovable property, other than for plant and machinery, unless it's an input service for a further works contract.

Yes, Section 17(5)(c) and 17(5)(d) of the CGST Act specifically restrict ITC on works contract services and goods/services used for the construction of immovable property, including reconstruction, renovation, or repairs.

Project development services, such as programme management consultancy or marketing consultancy, used for the construction of immovable property are also ineligible for ITC under Section 17(5).

The main exception is if the works contract service is an input service for the further supply of a works contract service. Also, the restriction does not apply to plant and machinery.

The AAR Gujarat ruled that ITC is not available for project development services like consultancy, land levelling, and infrastructure development used for constructing an immovable property (SIPC), citing Section 17(5).

The Orissa High Court ruled that ITC should be allowed for constructing a mall intended for future letting out, as GST is payable on rental income. However, the department has appealed this decision to the Supreme Court, and the matter is still pending.