In her first major interview after the latest GST reforms, Finance Minister Nirmala Sitharaman addressed two of the most debated tax issues in India—why petrol and diesel remain outside GST and whether the government will reintroduce input tax credit (ITC) for the real estate sector.

Speaking at an exclusive session with India Today, the Finance Minister clarified that there is indeed a legal provision to bring petrol and diesel under GST. However, she explained that the decision lies with the states, not just the Centre.

“The law allows it, but implementation depends on states agreeing on the rates. The GST Council will take the call when states find it appropriate,” Sitharaman said.

Why Fuel Remains Outside GST

Currently, petrol and diesel are taxed through two major sources:

1. State-level Value Added Tax (VAT)

2. Central excise duty

Together, these taxes are among the largest revenue streams for states as well as the central government. If fuels are brought under GST, states fear they will face significant revenue losses, especially since GST slabs are capped at 5%, 12%, and 18%.

While the original GST framework (2017) had included a provision for absorbing petroleum products, states have consistently resisted its implementation. According to industry experts, shifting fuel to GST could lower consumer prices, but it would also reduce fiscal independence for states, making it a politically sensitive decision.

Input Tax Credit (ITC) in Real Estate

The Finance Minister also dismissed the possibility of restoring ITC for under-construction real estate projects.

At present, builders pay a flat 5% GST on under-construction properties but cannot claim credit on taxes paid for raw materials like cement, steel, and fittings. Developers have argued that this increases construction costs and reduces profit margins, as input costs remain high.

Sitharaman explained that the current no-ITC regime was introduced to ensure simplification and transparency, following requests from both consumers and policymakers.

Even though the GST Council recently reduced taxes on building materials—cement from 28% to 18% and granite from 12% to 5%—the policy of denying ITC remains unchanged. The government maintains that restoring ITC could lead to revenue leakage and add compliance complexities for builders.

Balancing Reform and Revenue

The FM’s comments highlight the delicate balance between reform and revenue protection. On one hand, there is pressure to bring fuels under GST to ensure uniform taxation and lower consumer prices. On the other, both the Centre and the states rely heavily on fuel taxation to meet their fiscal needs.

Similarly, while the real estate sector has repeatedly demanded relief through ITC, the government insists that its priority is maintaining compliance simplicity rather than reintroducing complex credit systems.

Conclusion

Finance Minister Nirmala Sitharaman’s stance makes it clear that both fuel taxation and real estate GST reforms will remain unchanged in the near term.

• Petrol and diesel under GST: Legally possible, but states must agree before the GST Council moves forward.

• Real estate ITC: No plans for restoration, as the government believes the simplified GST model works better for compliance.

This means that while consumers and industries may have to wait longer for relief, the government’s focus is on stable revenue and simplified tax administration, rather than making politically risky or complex changes.

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