GST Input Tax Credit Denied for Commercial Property Construction
The Maharashtra Authority for Advance Ruling decided that GST paid on construction costs for commercial rental property cannot be claimed as credit.
- Ruling
- GST-ARA-88/2019-20/B-30, Mumbai, dated 12.03.2020
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- The company asked if they could claim GST credit on construction costs.
- The property was built for the purpose of renting it out.
- The Authority ruled that this credit is blocked under GST law.
- The ruling confirms that construction expenses for own-account property are ineligible.
In short
The company asked the Maharashtra Authority for Advance Ruling (AAR) if they could claim Input Tax Credit (ITC) on the GST paid for building a commercial property they intended to rent out. The authority looked at whether construction costs for a building used for business purposes qualify for tax relief.
What has changed
How it worked before
Businesses were often uncertain about claiming this credit, especially after some court cases suggested that renting out property might allow for ITC claims.
What has changed
The authority ruled that Section 17(5)(d) of the Central Goods and Services Tax (CGST) Act strictly blocks credit for goods and services used to construct immovable property on one's own account. This means you cannot reduce your tax liability by claiming the GST paid on construction materials or services, even if you use the building to earn rental income.
Who this affects
Property developers and business owners who construct commercial buildings on their own land to lease them out.
An example
Imagine a business owner, 'BuildCorp', constructs a warehouse to lease to logistics companies. They want to claim the GST paid on cement and architectural services as input tax credit. Based on this ruling, BuildCorp would likely be denied this credit because the law blocks it for construction on their own account.
What you should do
You should treat this as a warning that the tax department currently views these construction costs as ineligible for credit. Remember that an Advance Ruling only binds the specific business that asked the question and their local tax office; it is not a universal law that applies to your business automatically.
If you do nothing
If you claim this credit and the tax department disagrees, they may issue a demand notice for the unpaid tax plus interest and penalties. Relying on a favorable interpretation that contradicts this ruling could lead to costly litigation. Always consult with a tax professional before claiming credits that are explicitly blocked by the Act.
The terms explained
- Input Tax Credit
- The tax a business pays on its purchases that it can use to reduce the tax it owes on its own sales.
- Blocked Credit
- Specific categories of expenses where the government does not allow businesses to claim back the GST paid.
- Immovable Property
- Physical assets that cannot be moved, such as land, buildings, or warehouses.
The ruling in detail
Authority for Advance Ruling
M/s. ASHISH ARVIND HANSOTI
GST-ARA-88/2019-20/B-30, Mumbai, dated 12.03.2020 · Maharashtra
Questions before the authority
- Whether applicant is eligible to claim input tax credit of GST paid on input & input services used for construction of commercial immovable property, subsequently used for renting.
Facts
The applicant is a proprietor engaged in the construction of commercial property on his own account with the intent to lease the premises. The applicant sought an advance ruling on the eligibility to claim Input Tax Credit (ITC) for goods and services used during the pre and post-construction phases of this property, which is subsequently used for renting.
Ruling
| Question | What the authority ruled |
|---|---|
| Eligibility to claim ITC on construction of commercial property for renting | Answered in the negative The applicant is not eligible to claim the input tax credit |
The Authority ruled that the applicant is not eligible to claim input tax credit for GST paid on inputs and input services used for the construction of the commercial immovable property. The ruling confirms that such credit is blocked under the provisions of the CGST Act.
Reasoning
The Authority relied on Section 17(5)(d) of the CGST Act, which explicitly bars input tax credit for goods or services received by a taxable person for the construction of an immovable property on his own account. The ruling clarified that this restriction applies even when such property is used for the furtherance of business, such as renting. The Authority distinguished this case from the Safari Retreats judgment by noting that the latter is currently pending before the Supreme Court and that the Authority is not relying on it.
Provisions relied on
- Section 17(5)(d) of the CGST Act
- Section 97 of the CGST Act
- Section 98 of the CGST Act
For the practitioner
This ruling serves as a **negative precedent** for taxpayers seeking to claim ITC on construction expenses for commercial properties intended for rental income. It reinforces the strict application of the **blocked credit provisions** under Section 17(5)(d) despite arguments regarding the cascading effect of taxes. Practitioners should note that the Authority explicitly declined to follow the Safari Retreats High Court decision due to its pending status in the Supreme Court.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/mah_aar_88_2019-20_b-30_12.03.2020_aah.pdf
Legibility of the scan, as read: high.
Prepared 20-10-2026.
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