Industry groups in India are lobbying for reforms to GST regulations, aiming to reclaim input tax credits on construction and operational costs for data centres, warehouses, and employee benefits, to boost competitiveness and investment.
Industry groups are pressing New Delhi to ease goods and services tax rules that stop companies from claiming input tax credit on a range of business costs, including construction spending on warehouses and data centres, according to people familiar with the discussions.
At the centre of the request is Section 17(5) of the Central GST Act, which blocks credit on works contract services and on goods and services used to build immovable property, subject to limited exceptions. Industry representatives say that leaves tax paid on cement, steel and other construction inputs stranded in the cost base of projects that later generate taxable revenue, raising the expense of setting up capital-intensive facilities.
The push is not limited to bricks and mortar. Business bodies have also asked for a review of the broader bar on credits for items such as food and beverages, outdoor catering, health services, vehicle leasing and insurance, arguing that these are routine operating costs in employee-heavy businesses such as global capability centres. They say allowing credit would lower costs, improve competitiveness and bring India closer to the treatment of similar taxes in countries including Britain, Canada, Singapore and Germany.
PwC partner Nitin Vijaivergia told Business Standard that credit on construction costs would prevent tax from becoming a sunk cost in the supply chain and would make India more attractive to investors in warehousing, logistics and data centres. He added that the same logic should extend to employee-related spending such as food and health insurance, saying the current blocks were framed when GST was new and have not kept pace with how companies now structure operations and benefits.
The demand comes against a backdrop of strict rulings on construction-related credit. The Gujarat Authority for Advance Ruling has said ITC is not available on goods and services used to build a warehouse or shed, even when the structure is used for taxable storage or leasing. Separately, PwC has asked for clearer guidance on whether hyperscale data centre infrastructure should be treated as plant and machinery or as civil construction, a distinction that can decide whether input credit is allowed.
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