Construction is an intricate process that encompasses planning, design, and financing and continues until the structure is ready for occupancy. Large-scale construction, in particular, involves extensive multitasking and coordination among various teams and activities. Navigating the complexities of Goods and Services Tax (GST) poses a significant challenge for developers, contractors, and property owners alike. Since its implementation, GST has profoundly transformed the construction industry landscape, affecting everything from budgeting to project management. Understanding the nuances of GST on construction work is essential for ensuring seamless operations and maintaining financial prudence within the sector.
GST Rate and HSN Code in Construction Services
| Services Category | GST Rates | HSN Codes |
|---|---|---|
| Construction GST Rate (General) | 18% | 9954 |
| Affordable Housing Apartment GST on construction services (from April 1, 2019) | 1%* | 9954 |
| GST on Building Non-affordable Housing Apartments (from April 1, 2019) | 5%* | 9954 |
| Commercial Apartments in REP (except RREP) | 12%* | 9954 |
| Works Contract GST Rate (Material supplied by the contractor) | Works Contract GST Rate (Material supplied by the contractor) | 9954 |
| Works Contract GST Rate (Material supplied by the contractor) Works Contract Services HSN Code and GST Rate (Only labour supplied by the contractor) | 18% | 9954 |
| Composite Supply of Works Contract and Goods (Goods < 25% of total contract value) | 18% | 9954 |
| Composite Supply of Works Contract and Goods (Goods ≥ 25% of total contract value) | 12% | 9954 |
GST Rates on Construction Materials
| Materials | GST Rates |
|---|---|
| Sand | Oil shale/bituminous, Asphaltic Rocks, Natural Asphaltites, Tar Sand, Asphalt- 18% Natural sand- 5% |
| Crushed Stones, Pebbles, Gravel | 5% |
| Coal | 5% |
| Building Stones | 5% |
| Brick | 5% – 28% |
| Tiles | 5% – 28% |
| Mica | 12% |
| Granite and marble | Blocks- 12% Not in Blocks- 28% |
| Steel and Iron | 18% |
| Bathroom Interiors and Appliances | Pipes and tubes, fitting- 18% Other items- 28% |
| Cement | 28% |
| Wallpaper | 28% |
| Varnish and Paint | 28% |
| Electrical Appliances | 28% |
GST ITC Claim on Construction Services
Input Tax Credit (ITC) serves as a pivotal principle within the GST framework, enabling businesses to reclaim the tax paid on inputs utilized in producing or providing goods and services. Its influence extends to developers and the comprehensive cost framework of a project.
Developers can leverage ITC to counterbalance the GST paid on diverse construction expenses, encompassing raw materials, services, and other essential inputs. This credit holds the potential to markedly curtail the tax obligation on the end product, consequently fostering potential cost efficiencies.
FAQs
Q1. Can I claim GST for Under Construction Property and what are the conditions?
Yes, you can claim GST for under-construction property under certain conditions. Properties that are still under construction and intended for sale are subject to GST as they are classified as a supply of service. However, completed properties ready for sale are exempt from GST. To claim GST for under-construction properties:
- Ensure the property is registered under GST.
- Maintain proper documentation and GST-compliant invoices.
- Utilise available exemptions and concessions where applicable.
Q2. What is GST in Construction, and how does it affect the industry?
GST in construction refers to the application of the Goods and Services Tax on various construction activities, including private, commercial, and residential projects. It streamlines the taxation process by replacing multiple indirect taxes like service tax, excise duty, and VAT with a single unified tax system. This simplification helps developers, contractors, and property owners manage their finances more efficiently and ensures better compliance with tax regulations.
Q3. What is the GST on Construction Services, and who is responsible for paying it?
The GST on construction services generally stands at 18%, but there are exceptions:
- Affordable Housing Projects: 1% GST rate.
- Infrastructure Projects: 5% GST rate.
Developers and contractors are responsible for calculating and remitting the appropriate GST on construction services based on the project’s classification. Accurate invoicing and adherence to GST regulations are crucial to ensure compliance and avoid penalties.
Q4. Are there any exemptions available under GST in Construction?
Yes, there are several exemptions under GST in construction:
- Property Resale: GST is not applicable when reselling properties.
- Completed Residential Properties: Exempt from GST.
- Buying/Selling Land: GST does not apply to land transactions.
- Pradhan Mantri Awas Yojana (PMAY): Construction services through pure labour contracts under PMAY are exempt.
- Pure Labor Contracts: Exempt for single residential units or parts of residential complexes.
