GST Amendment Likely to Raise Realty Project Costs and Lease Rents
Date: December 25, 2024 | By: Admin
Categories: GST Recent News | Reading Time: 4 Minutes
The GST Council’s recent decision to amend the Central Goods and Services Tax (CGST) Act retrospectively is expected to increase real estate project costs and lease rents. Experts have raised concerns over the amendment, which restricts Input Tax Credit (ITC) on construction services for commercial properties, such as malls and shops used for leasing. This change reverses the Supreme Court’s ruling that previously allowed ITC claims.
Key Changes and Impacts
1. Retrospective Amendment
- The Council replaced the term “plant or machinery” with “plant and machinery”, effective from July 1, 2017.
- As a result, ITC claims for construction costs of rental properties are now invalid, overturning the decision made in the Safari Retreats case.
2. Increased Project Costs
- Project costs are estimated to rise by 18%, as developers can no longer claim ITC.
- Consequently, this cost increase is likely to be passed on to tenants, leading to higher lease rents—potentially 18% more than current levels.
3. Legal Challenges
- Developers may challenge the amendment in court, arguing it leads to unequal treatment compared to residential properties.
- The amendment could also result in a loss of significant tax benefits for businesses.
Industry Concerns
Tax experts warn that the amendment could stall the recent growth in commercial real estate. Businesses may face increased financial pressure and uncertainty, further complicating the situation.
One expert noted:
“This amendment will lead to ongoing litigations. Developers fear challenges from GST authorities, and many may transfer this cost burden to tenants.”
Another expert added:
“While the amendment clarifies some issues, it leaves confusion about ITC eligibility for properties leased or sold before construction is complete. The industry may face further legal battles.”
Conclusion
The GST Council’s retrospective amendment poses significant challenges for the commercial real estate sector. It is expected to raise costs, escalate rents, and spark fresh legal disputes. Both developers and tenants must prepare for the financial and operational impacts of these changes.
