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Indian GST does not allow every construction-related input tax credit (ITC), even when the property supports a taxable business. Section 17(5)(c) generally blocks works-contract services used to construct immovable property, subject to a specific exception for input works-contract services used for a further supply of works-contract service. Section 17(5)(d) separately addresses goods or services used to construct immovable property on the recipient’s own account, including property used for business. The result depends on the procurement arrangement, the asset, capitalisation, the relevant claim period and the statutory wording then in force.
Which construction-related credits does GST block?
Section 17(5)(c) and section 17(5)(d) are separate restrictions in the Central Goods and Services Tax Act, 2017 (CGST Act). First identify whether the inward supply is a works-contract service or is being used for construction on your own account. Ordinary ITC conditions under section 16 still apply, but meeting those conditions does not override a specific block under section 17(5).
| Rule | What it covers | Express exception or key qualification |
|---|---|---|
| Section 17(5)(c) | Works-contract services supplied for construction of immovable property, other than plant and machinery | Credit is allowed where the works-contract service is an input service for a further supply of works-contract service. |
| Section 17(5)(d) | Goods or services received for construction of immovable property on the recipient’s own account, including property used in the course or furtherance of business | The relevant plant wording and any amendment applicable to the claim period must be checked. The Supreme Court’s interpretation and a later Council recommendation are discussed below. |
What counts as a works contract?
The CGST Act definition covers a contract involving building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of immovable property where transfer of property in goods is involved in executing the contract. The classification concerns the supplier’s contract: a pure service or a supply of goods alone is not automatically a works contract under this definition.
How the rules apply to different construction arrangements
Own-account office, warehouse, mall or other premises
Where a business constructs immovable property for itself, section 17(5)(d) is relevant even if the premises are used for taxable business activity. The fact that the property helps generate taxable supplies, by itself, does not remove the own-account restriction. Whether the property could fall within the plant wording is a separate question whose treatment depends on the relevant statutory text and the facts.
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Contractor using subcontract works-contract services
Section 17(5)(c) contains a specific onward-supply exception. A contractor should establish that the inward works-contract service is an input service for its further supply of a works-contract service. It is not a general exception for any taxable output or business activity.
Developer constructing units for pre-completion sale
Construction inputs may relate to taxable outward supplies, but that fact alone does not settle eligibility. Apply clauses (c) and (d) separately to the procurement route, whether the construction is on the developer’s own account, the nature of the property and any applicable exception. Do not infer that a taxable sale automatically makes every construction credit available.
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Repairs, renovations, additions and fit-outs
For clauses (c) and (d), the statutory explanation includes reconstruction, renovation, additions, alterations and repairs to the extent they are capitalised to the immovable property. The accounting treatment and the link between the cost and the property therefore matter. The wording does not make every routine repair or maintenance invoice a blocked construction credit; the stated capitalisation qualification must be considered.
Separately identifiable machinery or equipment
Do not treat a building and equipment installed at a site as one asset without analysis. The statutory definition of plant and machinery includes apparatus, equipment and machinery fixed to earth by foundation or structural support and used to make outward supplies; it also includes those foundations and supports. It excludes land, buildings and other civil structures, telecommunication towers, and pipelines laid outside factory premises. Apply the definition to the particular item and keep it distinct from the building itself.
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What Safari Retreats said about a building as plant
In Safari Retreats, decided on October 3, 2024, the Supreme Court of India distinguished clause (d)’s phrase “plant or machinery” from the defined phrase “plant and machinery.” As reproduced in the GST Council’s 55th meeting record, the Court said: “Functionality test will have to be applied to decide whether a building is a plant.” The question is factual: the property’s function and role in the business must be examined. The Court noted that a building essential to supplying services such as renting or leasing could qualify on the facts; this does not establish that every rental building qualifies.
The Council’s 55th meeting record and the corresponding CBIC press release state that the Council recommended retrospectively replacing “plant or machinery” with “plant and machinery” in section 17(5)(d), from July 1, 2017. A Council recommendation is not itself proof that Parliament enacted an amendment or that it commenced. The available material here does not establish the central enactment and commencement status. Before relying on either the recommendation or the judgment for a claim, check the applicable central Act text, its effective date and the wording for the claim period.
How to assess a disputed construction ITC claim
- Identify the inward supply. Separate goods, pure services and works-contract services. For a claimed works contract, check whether the contract includes transfer of property in goods in executing work on immovable property.
- Establish whose construction it is. Determine whether the business is constructing property on its own account or receiving an input works-contract service for a further works-contract supply.
- Identify the asset. Distinguish the immovable property or civil structure from separately identifiable machinery or equipment, and assess the statutory plant-and-machinery definition for each relevant item.
- Check the cost treatment. For reconstruction, renovation, additions, alterations and repairs, establish whether the expenditure is capitalised to the immovable property.
- Record the property’s actual function. If a building-as-plant argument is relevant, document how the building functions in the business and its role in outward supplies; the functionality test is fact-specific.
- Apply the law for the claim period. Verify the CGST Act wording and commencement of any amendment applicable to the period. Then test ordinary section 16 eligibility as well as any section 17(5) restriction.
Questions businesses often ask
Can I claim GST ITC on construction of a commercial building?
Not merely because the building is commercial or supports taxable activity. Determine whether section 17(5)(c) or (d) applies, whether construction is on the recipient’s own account, whether an exception is available, and what statutory wording governs the claim period. A building-as-plant argument requires a fact-specific functionality analysis and confirmation of the applicable law.
Is GST ITC available on works-contract services?
It may be available under the express clause (c) exception when the inward works-contract service is an input service for a further supply of works-contract service. That exception does not extend generally to every taxable business activity.
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Can a landlord claim GST credit on construction costs?
Landlord status or taxable rental activity alone does not answer the question. The own-account construction rule, the property’s actual function, the cost treatment, the claim period and the applicable statutory wording all need to be assessed.
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