GST Council may consider ITC rationalisation for real estate, construction

Proposals include ITC on pipelines and telecom towers, contracted prices between government-owned firms, and wider credit for hospitality, tourism and wellness services

The Goods and Services Tax (GST) Council may consider proposals on rationalising input tax credit (ITC) in real estate, construction, hospitality, and tourism sectors. This would include areas where assets directly serve businesses, as well as transactions between government-owned entities.

 

People aware of the discussions ahead of the Council meeting this week said that ITC on pipelines laid outside factory premises that are fixed to the ground had fallen within the description of immovable property on which credit was not available. But since these pipelines are used to carry materials of the business, ITC could be allowed. The proposal would equally apply to industries that lay pipelines to move products between points outside the factory gate, such as refining, petrochemicals, fertilisers, gas distribution, and water infrastructure, where pipelines account for a substantial part of capital expenditure. Telecom towers would also fall in the same bucket.

 

Experts noted that a relief of this nature could reduce the tax cost of large industrial and infrastructure projects.

 

The Council could also consider a proposal permitting the contracted price to hold good between government-owned companies while executing projects. At present, such companies are treated as related parties, meaning that the price they charged each other could be substituted by a notional value. Giving the contracted price sanctity would provide certainty for public housing, development, and infrastructure contracts. Contractors and developers would also gain from a wider release of blocked credit, particularly on vehicles and insurance, both of which are substantial recurring costs on a project site.

 

Among the proposals made for hospitality, tourism, restaurant, and wellness services, ITC rationalisation by extending credit to services bought and resold in the same line of business may be given the go-ahead. People aware of the details said that in most cases of hotel rooms (priced up to ₹7,500 a night), catering, restaurant services, et al., the service would be sold by intermediaries or platforms, thus getting taxed twice, which was ultimately borne by the consumer. These services are taxed at 5 per cent without credit.

 

Outdoor catering, beauty treatment, health services, and cosmetic and plastic surgery may also be allowed similar credit flow. For a hotel or resort running a restaurant, spa, and a gym on its premises, this could entail credit release on services it procures to serve its own guests. People aware of the details also noted that helicopter travel may be exempted where the passenger flies on a seat-sharing basis to or from a helipad, on the same footing as travel to and from an airport.