Leased Property GST ITC: Legal Disputes and Policy Uncertainty
The eligibility of input tax credit (ITC) on leased property construction expenses remains a contentious issue, with businesses caught between legal interpretations and evolving government policies. While the Supreme Court’s Safari Retreats ruling (October 2024) brought temporary relief by allowing ITC on leased properties, a subsequent review petition and proposed retrospective amendment have deepened tax uncertainty for real estate developers and commercial property investors.
Key Developments Impacting ITC on Leased Property
| Event | Impact on ITC |
|---|---|
| Supreme Court ruling in Safari Retreats (Oct 2024) | Allowed ITC on leased property, favoring businesses |
| Finance Bill 2025 (Proposed Retrospective Amendment) | Aims to block ITC, creating compliance challenges |
| Revenue Department Review Petition (Pre-Budget 2025) | Challenges the Safari Retreats ruling, adding uncertainty |
Retrospective Amendment: A Cause for Concern?
The Finance Bill 2025 proposes retrospective changes to clarify GST provisions on leased property ITC. While the government argues this ensures uniform interpretation of tax laws, critics highlight concerns over tax predictability and increased litigation risks. Businesses now face uncertainty over:
- Tax positions taken in prior years
- Potential reassessment of GST liabilities
- The outcome of ongoing legal proceedings
Judicial vs. Legislative Battle: What Lies Ahead?
The Supreme Court’s review of Safari Retreats and the retrospective amendment present two conflicting paths. Legal experts caution against assuming ITC is completely ineligible, emphasizing that the final outcome depends on:
- Interpretation of statutory language in GST law
- Nature of the taxpayer’s business activities
- Supreme Court’s final stance on ITC applicability
According to Abhishek A Rastogi, Founder, Rastogi Chambers, businesses must undertake a detailed legal and factual assessment to support their ITC claims. The Revenue Department’s review petition is unlikely to introduce new arguments beyond those concluded in earlier proceedings.
How Businesses Should Prepare
Given the uncertainty, real estate developers and leasing businesses should proactively:
- Conduct detailed legal assessments of past and future transactions
- Evaluate potential GST liabilities under different legal scenarios
- Stay updated on court rulings and policy changes
- Seek expert legal guidance to navigate evolving ITC regulations
Conclusion: Awaiting Final Clarity
With judicial review and legislative amendments still unfolding, businesses must prepare for multiple possible outcomes. The Supreme Court’s decision and final implementation of the Finance Bill will set a critical precedent for GST ITC treatment in the real estate sector. Until then, prudent financial planning and legal preparedness remain essential to mitigate compliance risks and uncertainties.