SC Tax Ruling on ITC May Amplify Commerical Realty Investment

10/14/2024 12:07:00 PM

                The Supreme Court's recent ruling allowing claiming of input tax credit (ITC) for construction of any property meant for the supply of taxable services such as renting has brought in 
clarity in terms of tax liabilities and is expected to drive further investments into commercial realty, said industry officials and analysts.
Reduction in tax burdens may serve as a catalyst, encouraging new investments and revitalising interest from developers and institutional investors who may have stayed away due to 
higher costs.
Offices, malls, and hospitality ventures focused on building and leasing properties are likely to gain the most from the top court ruling as these areas usually require substantial upfront 
investments and long-term financial commitments.
"The SC acknowledging our stance on ITC marks a positive step for the commercial property sector, which is experiencing a resurgence in absorption and rental levels fuelled by the 
'back to office' trend across industries such as IT, ITeS, and e-commerce, revitalising leasing velocity. This ruling is a boon for the realty industry helping attract new  investment," said 
Niranjan Hiranandani, chairman of industry body Naredco.
He said new commercial space supply has started catching up aided by enhanced connectivity and growth of the hub-and-spoke business model in the context of decentralisation, and 
the ruling will give more confidence to institutional investors in this segment.
This has significant implications for business models that rely on leasing real estate. The most immediate effect is the financial relief for developers and investors.
"Real estate firms that develop commercial, including co-living projects, specifically for leasing purposes will now be able to claim ITC, reducing their overall project costs. This is a 
major relief for capital-intensive businesses like these where the income will start after the completion, and hence it will provide a boost to investment," said Amit Bhagat, CEO of ASK 
Property Fund.
The Supreme Court has held that curbs on claiming ITC for construction-related expenses should not apply when the end-use of the property is a taxable activity. In essence, it 
bridges the gap between the tax payable on rental income and ITC available on construction costs, allowing developers to offset their tax liabilities.
With clearer tax benefits, developers are likely to be incentivised to expand their portfolios of malls, office complexes, and retail spaces. This could also boost supply of rental 
properties, providing more options to businesses and tenants, industry experts said.
The reduction in tax liability for developers could also translate into more competitive rental rates. As developers pass on the benefits of reduced costs to tenants, the commercial real 
estate market could see more affordable rents, especially in large metro cities where rent for office spaces and retail outlets is typically high.
The ruling brings much-needed clarity to an area of GST law that was previously uncertain. With the legal framework now better defined, developers and real estate companies can 
plan their tax compliance strategies with greater confidence. The decision also sets a precedent that could influence future litigation on similar issues, fostering a more consistent tax 
environment in the sector.


Source : Economic Times

            
INDIA
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