Govt proposes retrospective amendment in Budget for FY26 to overcome the Safari Retreats verdict

Govt proposes to amend GST rules regarding input tax credit

Companies from sectors such as real estate, warehousing and leasing are set face impact of lower input tax credit as the government proposes to amend the rules to incorporate a retrospective amendment. In the Union Budget for FY26, the government has proposed to replace the Section 17(5)(D) of CGST act clarifying that commercial properties cannot qualify as ‘plant and machinery’ for input tax credit under the Goods and Services Tax(GST) regime.

The tweak is in contrast to the Supreme Court of India judgement in the Safari Retreats case where the court had allowed the companies to claim tax credit for commercial properties.

“Union Budget has formalized the amendment to Section 17(5)(d) of the CGST Act by replacing ‘plant or machinery’ with ‘plant and machinery,’ retrospectively effective from July 1, 2017. This change codifies the government's intent to restrict input tax credit (ITC) on construction costs and directly overturns the Supreme Court's ruling in the Safari Retreats case.” Said Saurabh Agarwal, partner, EY.

The Safari Retreats case revolved around the eligibility of Input Tax Credit on GST paid for constructing commercial properties used for leasing. “The Supreme Court ruled in favor of allowing ITC, interpreting that if the property generates taxable revenue, ITC should not be denied.” Said  Amit Maheshwari, partner, AKM Global. “However,the Finance Bill 2025 proposes a retrospective amendment (effective July 1, 2017) to override this ruling, explicitly disallowing ITC on immovable property construction, even if used for leasing.”

Tax experts however add that this amendment will bring more clarity in terms of applicability of GST and could potentially reduce litigation.