Industry Seeks GST Input Tax Credit Relief for Data Centres
Industry bodies have approached authorities seeking amendments to Goods and Services Tax (GST) rules, specifically focusing on input tax credit (ITC) restrictions that currently raise business costs and affect competitiveness. A primary demand is to allow companies to claim ITC on GST paid for construction work and materials, such as cement and steel, used to build critical infrastructure like data centres and warehouses.
Currently, Section 17(5) of the Central GST Act prohibits ITC on certain construction-related expenses for immovable property, including works contract services and goods used for construction. This restriction, industry representatives argue, inflates the cost of establishing facilities. For instance, a data centre operator may pay GST on construction, cement, and steel but cannot fully offset this tax against the GST collected on its services, effectively embedding the tax as a cost.
Operational Cost Impact
Industry bodies are also advocating for a review of Section 17(5)(b), which blocks ITC on various expenses incurred during regular business operations. These include food and beverages, outdoor catering, health services, motor vehicle leasing, and life and health insurance. Such expenses can constitute a substantial portion of spending in employee-intensive sectors, including global capability centres (GCCs).
Allowing ITC on these operational expenses would reduce overall tax costs, thereby improving the competitiveness of Indian operations and supporting the government’s objective of enhancing the ease of doing business. Industry has proposed amending Section 17(5)(b) to facilitate this.
