What is input tax credit (ITC) for real estate developers?

Input Tax Credit (ITC) allows businesses to reduce their GST liability by claiming credit for the GST paid on their inputs (raw materials, services, etc.) used for business purposes. In real estate, ITC was available to developers on under-construction projects but was significantly restricted from April 2019 onwards.

Why Was ITC Removed for Residential?

• Government found that benefits were not being passed on to buyers.
• Complex audit trail made ITC misuse difficult to detect.
• Simpler 1%/5% flat rates without ITC were introduced as a trade-off.

ITC Still Available for Commercial Real Estate

• Developers of commercial properties (offices, shops, malls) continue to get ITC.
• This keeps the commercial real estate GST chain intact.
• Buyers of commercial property also get ITC if they are GST-registered businesses.

ITC for real estate developers is now available only on commercial projects. The removal of ITC from residential projects was a deliberate policy choice to simplify compliance, though it does mean higher input costs for builders of homes.