Industry groups in India are calling on tax authorities to ease Goods and Services Tax restrictions on construction inputs, aiming to reduce costs and boost investment in data centres and warehouses amid ongoing regulatory challenges.
Industry groups are pressing India’s tax authorities to ease Goods and Services Tax restrictions that they say are inflating the cost of building data centres, warehouses and other capital-heavy facilities. The core demand is for input tax credit, or ITC, to be allowed on GST paid on construction materials such as cement and steel, which companies currently cannot fully recover when the assets are treated as immovable property.
Under Section 17(5) of the Central GST Act, ITC is blocked on several construction-related inputs and services used for immovable property, other than plant and machinery. Tax advisers say that rule means GST paid during construction is often absorbed as a permanent cost rather than being set against output tax, raising the price of setting up facilities even when the finished project is used for taxable business activity.
The industry is also urging a broader review of Section 17(5)(b), which restricts credit on expenses such as food and beverages, outdoor catering, health services, vehicle leasing and life and health insurance. Businesses in labour-intensive sectors, including global capability centres, argue that these costs make up a meaningful share of operating budgets and that allowing credit would reduce tax leakage, improve competitiveness and support the government’s ease-of-doing-business push.
Recent tax commentary and case law underline how firmly the current framework is applied. Guides from TaxScan, ClearTax and other tax advisers say credit remains unavailable for construction of immovable property for own use, even where the underlying business is taxable, while the Gujarat Authority for Advance Ruling has held that ITC is not admissible on goods and services used to build a warehouse or shed, even if the facility is used for storage, warehousing or leasing. Industry representatives argue that aligning the rules more closely with international VAT practice would make India a more attractive destination for investment in logistics, warehousing and data infrastructure.
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