25 March 2019
FACT:: I run proprietary business registered under GST and engaged in the business (service) of renting of warehouses in Bhiwandi, Maharashtra. I have one owned open commercial plot on which I am planning to construct warehouse and subsequently, renting this warehouse to earn rent. I have two options available with me to construct warehouse, First option is to do self-construction by assigning local labours with all material to be purchase by me. Second option is to give contract to some builder (Regd. under GST) to construct the warehouse. In both the options, it will take at-least 6 months to one year to get warehouse constructed and ready for renting out the same.
QUERY:: Will I get GST ITC on consideration (expenses incurred) paid for constructing warehouse? If I get GST ITC then I will utilise this ITC against my GST Liability resulting from rent income earned from this new warehouse.
Dear experts please give your valuable opinion/remark to resolve my above mentioned query. This will also help readers to gain knowledge in field of GST. Many Thanks.
02 August 2024
### ITC on Construction of Warehouse for Renting Business
In GST, Input Tax Credit (ITC) on the construction of immovable property used for renting purposes can be complex. Here’s how it applies to your situation:
### **1. Eligibility of ITC on Construction**
Under GST, the eligibility for ITC on construction services depends on the type of service provided and the use of the property:
- **Section 17(5) of the CGST Act** deals with the blocked credits. ITC is generally not allowed for the following:
- **ITC on construction of immovable property**: As per **Section 17(5)(c)** of the CGST Act, ITC on the construction of immovable property is blocked unless the property is used for:
- **Further supply of the property**: If the construction is for further supply of the property as such (i.e., sale of the property). - **Construction services**: If the construction is for providing construction services as part of your business.
### **2. Specific Scenarios**
#### **Self-Construction**
- If you are constructing the warehouse yourself (self-construction): - ITC on the purchase of materials and services for self-construction is **not eligible**. This is because the property is intended for rental, and the blocked credit rules under Section 17(5) apply.
#### **Contracting a Builder**
- If you hire a registered builder to construct the warehouse: - The ITC on the construction services provided by the builder is **not eligible** for the same reason. ITC on services related to the construction of immovable property is blocked under **Section 17(5)** unless the property is for sale or used for providing construction services.
### **3. GST Liability and ITC Utilization**
- Since ITC on construction services is blocked, you cannot use ITC against your GST liability from rental income derived from the new warehouse. - The GST paid on construction services cannot be claimed as ITC and cannot be utilized to offset GST liability.
### **Relevant Sections and Notifications**
- **Section 17(5)(c)** of the CGST Act: Blocked credits for the construction of immovable property. - **Rule 42 and Rule 43** of the CGST Rules: These rules outline the reversal of ITC on inputs and input services used for exempt supplies.
### **Summary**
- **Self-Construction**: ITC on materials and services is blocked. - **Builder Contract**: ITC on construction services from a builder is blocked. - **GST Liability**: ITC cannot be claimed for construction-related expenses and cannot be used to offset GST liability on rental income.
For more detailed advice and to ensure compliance with the latest GST rules, consulting a GST practitioner or tax advisor is recommended. They can offer specific guidance tailored to your situation and business model.
CAclubindia
