The government is actively examining industry concerns over the denial of input tax credit (ITC) on goods and services used to construct immovable property for own use, according to a senior government official. The issue is being discussed with states, but no agreement has been reached yet on easing the restriction, the official said at an industry interaction organised by the Bengal Chamber of Commerce and Industry (BCC&I). The official indicated that there was some examination of the issue, with discussions ongoing, though he declined to comment further as discussions were still underway. This development comes amid industry expectations that the matter could be considered by the GST Council, though the official indicated it had not reached a stage where any decision could be announced.
Major IT services companies are implementing comprehensive cybersecurity measures as cyberattacks surge across the sector. TCS, Infosys, Persistent, LTM and Coforge are running multi-crore programmes for Minimum Business Viability (MBV) assessments to secure their core operations, according to executive sources reported by ET. The move follows a series of security incidents and legal disputes that have heightened concerns about data protection and operational resilience. Last week, TCS and HCLTech separately informed stock exchanges that unidentified hacker groups had attempted to steal employee information, highlighting the growing threat landscape facing enterprise clients.
The government examination focuses on companies being unable to claim GST paid on certain goods and services used to construct immovable assets for their own use, such as offices, factories, global capability centres (GCCs) and other facilities. Industry has argued that the restriction increases the cost of large investments because the GST paid becomes part of the project cost instead of being available as credit. According to Vivek Jalan, partner with Tax Connect Advisory Services, the Supreme Court clarified in the case of Safari Retreats in October 2024 that ITC on goods and services used for construction of immovable property 'not for own use' but for further renting out can be availed based on the functionality test. However, he noted that even here it is sometimes disputed by certain Authorities in Centre and State jurisdictions, and ITC is not available for constructing business assets such as factories and warehouses for own use.
Industry bodies have also sought a review of Section 17(5)(b), which blocks ITC on several expenses that are part of regular business operations, as reported by Business Standard. These expenses include food and beverages, outdoor catering, health services, leasing, renting or hiring of motor vehicles, and life and health insurance, subject to specified exceptions. Industry representatives noted that these expenses can account for a significant share of spending in employee-heavy sectors such as global capability centres (GCCs). Allowing ITC on such expenses would reduce tax costs, improve the competitiveness of Indian operations, and support the government's ease-of-doing-business objective.
Industry has proposed amending Section 17(5)(b) to allow ITC on these expenses and cited practices in countries such as the UK, Canada, Singapore, and Germany, where indirect taxes paid on certain business expenses can be offset against tax liabilities, according to Business Standard. Nitin Vijaivergia, partner at PwC & Co LLP, explained that allowing such credit would bring India closer to global value-added tax (VAT) norms, where credit on construction costs is generally allowed as part of the VAT system. He noted that the construction cost for warehouses and data centres used to provide taxable services would stop credit from getting stuck as a cost in the supply chain, making India a more attractive investment destination for capital-intensive sectors like data centres, logistics and warehousing.
A proposed National GCC policy could significantly expand India's global capability centres sector, with Equirus estimating the potential to increase GCC numbers from more than 1,800 to 5,000, potentially generating an economic impact of $470-600 billion and creating 20-25 million jobs, according to the latest Equirus report. This expansion aligns with the broader goal of reaching India's $20 trillion economy target by 2036, which the report emphasizes depends on sustained rapid growth and improving the rupee's external value through expanding high-productivity services. The GCC sector's growth potential is particularly significant given its role in India's services economy transformation.
The government's approach to GST administration is moving towards greater automation, greater trust in taxpayers and less intervention and litigation, according to the official. The government wants businesses to be treated as partners in nation-building and economic development, with future reforms focusing on making GST processes simpler and easier. The official said this approach would be reflected in the next phase of GST reforms. Meanwhile, Sanjay Kumar Mishra, President of the Goods and Services Tax Appellate Tribunal (GSTAT), said the tribunal was adopting a mechanism of bunching similar cases and assigning them to the Principal Bench to deal with common legal issues, providing clarity on issues that arise across states and sectors.
