CGST Amendment 2025: Impact on Real Estate and ITC Claims

New Delhi: The government has made a key change to the Central Goods and Services Tax (CGST) Act, which could impact real estate companies that claim input tax credit (ITC) on construction and leasing of commercial properties. The amendment modifies the definition of ‘plant or machinery’ to ‘plant and machinery’ under Section 17(5), limiting the scope for businesses to claim ITC.

Understanding the CGST Amendment 2025

As part of the Union Budget 2025, the government has introduced this change retroactively, meaning it will apply from July 1, 2017, regardless of past court rulings or tax filings. This amendment is significant because it directly counters the Supreme Court’s ruling in the Safari Retreats Pvt Ltd case, where the court allowed businesses to claim ITC on commercial buildings classified as ‘plant’ under GST law.

By replacing ‘plant or machinery’ with ‘plant and machinery’, the CGST Amendment 2025 effectively restricts businesses from claiming ITC on real estate construction costs, even if the property is used for leasing or renting.

How Will This Impact Real Estate and Leasing Businesses?

This change is a major concern for real estate companies, especially those involved in leasing, renting, and warehousing. Since construction costs make up a large portion of overall project expenses, the inability to claim input tax credit means higher costs for businesses.

Additionally, since the CGST Amendment 2025 applies retroactively, businesses that previously claimed ITC under the earlier interpretation may now face compliance issues, disputes, or even financial penalties.

Expert Opinions on the Amendment

Tax experts and industry leaders have expressed concerns about this sudden shift:

• Harpreet Singh, Partner at Deloitte India, noted that this amendment overturns the Supreme Court’s ruling and reinforces the government’s strict stance on denying ITC for construction activities.
• Krishan Arora, Partner at Grant Thornton Bharat, highlighted that companies must now reassess their tax strategies to avoid potential disputes and compliance challenges.
• Some experts also believe that the government’s review petition in the Safari Retreats case could add more complexity, as the Supreme Court’s response may influence future tax interpretations.

What Should Businesses Do Now?

With the CGST Amendment 2025 now in effect, businesses should:

✅ Review past ITC claims and assess potential tax liabilities.
✅ Prepare for compliance checks and possible disputes over past tax filings.
✅ Monitor updates from the Supreme Court regarding the government’s review petition.

The real estate industry will need to adjust tax strategies to navigate this evolving GST landscape. While this amendment poses challenges, staying informed and prepared will help businesses minimize financial risks and ensure compliance moving forward.

Read more: UP-RERA Registers 259 Real Estate Projects in 2024

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