It is important to buy a house and is a long-term investment of money. the taxation on construction contracts has become simpler. Earlier, there were numerous taxes imposed on construction services. The introduction of GST has eradicated taxes like service tax, excise duty, and VAT.
Applicability of GST on Construction
GST is applicable to construction activities in India, whether it is private construction, commercial construction, or construction of flats/society. In other words, any property under construction which is intended for sale is considered a supply of service and, therefore, liable for GST. The ready-for-sale properties do not attract any GST. GST is only payable on under-construction properties. However, the applicability of GST on construction work depends on various factors such as the type of construction, the nature of the transaction, and the status of the parties involved in the transaction.
As per para (5b) of Schedule II of the CGST Act, supply of services is defined as the construction of a complex, building, civil structure, or a part of it, which is meant for sale wholly or in part. However, if full consideration is received after the issuance of the certificate of completion, it is not considered a supply of services and is exempt from GST. In other words, GST is applicable only on under-construction properties.
However, there are certain exemptions/concessions given under the GST law for taxation in the construction sector-
- GST on the construction work of affordable apartment housing projects is levied at a reduced rate of 1%. Affordable housing is defined as residential properties with a carpet area of up to 60 square meters in metropolitan cities and up to 90 square meters in non-metropolitan cities, with a value equal to or less than Rs. 45 lakhs.
- GST is not applicable to the construction of properties in the case of property resale, buying and selling apartments to be used as a residence, and the buying or selling of land.
- The construction services or enhancement services provided through pure labor contracts under the Pradhan Mantri Awas Yojana (PMAY) are exempt from GST.
- Construction services through pure labor contracts for a single residential unit or a part of a residential complex are also exempt from GST.
e-Way bills are required for the transportation of building materials such as cement, steel, etc only where the consignment value exceeds Rs.50,000.
The businesses involved in the supply of construction services are required to raise invoices wherever they are registered under GST.
What are the Scenarios for GST Rates on Under-Construction and Ready-to-Use Flats?
Purchase of Under-construction Property
GST is applicable on the construction services furnished via the developer if the purchase is of an under-construction flat from a developer. The GST rates alter as per the factors like the property type and the location.
Residential Properties
Properties where the carpet area of the commercial space does not exceed 15% of the total carpet area of all apartments in the project are Residential Properties.
Affordable Housing Projects
A concessional GST rate for affordable housing projects is been introduced by the government. Compared to standard residential properties, these projects secure a lower GST rate. For computing the gross amount all charges are to be regarded along with parking charges common facility charges etc and excludes Stamp Duty and Maintenance charges.
Ready-to-use Property
In the case of the purchase of ready-to-use property, no GST is applicable. Ready-to-use properties are specified as those that have obtained a certificate of completion denoting completion of construction and are ready for occupation.
| Area of Carpet | |
|---|---|
| Metropolitan Cities | Upto 60 square metres |
| Other Towns and Cities | Upto 90 square metres |
| Builder Gross Amount Charge | Upto INR 45 lakh |
Land
It is significant to cite that the sale and purchase of land are not counted under the ambit of GST. It is not a supply and hence not levied to GST. As per that on the purchase of under-construction Real Estate Property with land attached a fixed amount of 1/3rd of the Property Value will be attributed to the land and GST will be applicable on the balance 2/3rd portion only. For instance: Payment for Purchase = 120, Land = 40, and Property Purchase on which GST Chargeable = 120 * ⅔ = 80.
Commercial Property
GST is applicable on the purchase of commercial properties, including shops, offices, and other non-residential properties.
Non-affordable Housing Projects
Beyond Affordable Housing Projects. The expensive properties are in the interest of people who have higher purchasing power
ITC Availability on GST Paid During Construction
As per section 17 (5), clauses (c) and (d) of the CGST Act, ITC is not available in the following cases –
- If the expenses are incurred on work contract services for constructing an immovable property except expenses on input services for completing the supply of work contract services or construction of plants and machinery, such expenses are not eligible for ITC.
- ITC cannot be claimed in the case of renovation or repair of the property.
Note: Construction companies, builders, and promoters can claim ITC for the above expenses.
As per an update dated 3rd October 2024, the Supreme Court clarifies GST input tax credit can be claimed on construction for rental services for commercial purpose. The apex Court ruled that if a building’s construction is essential for providing services like leasing or renting for commercial activity, it could fall under the ‘plant’ exception to Section 17(5)(d) of the CGST Act. Section 17(5)(d) of the CGST Act prohibits ITC claims on construction materials used in construction of immovable property except for plant and machinery.
GST Rates On Real Estate Property
| Property Type | Till 31st March 2019 | GST Input Tax Credit | From 1st April 2019(new) | Input Tax Credit |
|---|---|---|---|---|
| Construction of affordable residential apartments | 8% | Available | 1% | Not Available |
| Construction of residential apartments other than affordable residential apartments | 12% | Available | 5% | Not Available |
| Commercial properties | 12% | Available | 12% | Available |
| Land and Ready-to-move(use) Properties | NA | NA | NA | NA |
- The developer is paid GST including the purchase consideration of the property who shall then remit the GST to the Government.
- Commercial Apartments in Real Estate Project (REP) apart from RREP or an ongoing project where the promoter has opted for old rates: 12% GST, ITC Available.
- Construction of commercial apartments in a Residential Real Estate Project (RREP), which begins on or after 01-04-2019 or in an ongoing project where the promoter has opted for the latest rates effective from 01-04-2019: effective GST rate is 5% with no ITC Available.
- To be entitled to the reduced GST rates of 1% and 5%, developers should ensure that at least 80% of the raw materials utilized in the construction process are obtained via registered dealers. It signifies that the majority of the materials, by value, must be sourced through the registered suppliers.
- On a Reverse Charge Basis, the developer is needed to pay GST at an 18% rate on any input falling short of 80% of input from registered suppliers. 28% if the input is cement ie purchase from an unregistered supplier.
- On the purchase of a flat, Stamp Duty and Registration charges will be applicable and to be paid separately. All these are not impacted by the GST.
- It is recommended to check whether the maintenance fees liable to be paid for these properties are subject to GST or not.
- Any Residential Welfare Association collecting exceeding INR 20 lakh (INR 10 lakh in some states) in annual maintenance is needed to mandatorily register for GST. This permits GST ITC advantages. Voluntary Registration is permissible.
- RWA does not need to be registered if turnover is more than INR 20 lakh but the monthly maintenance fees do not surpass INR 7,500 per member.
- But, GST on Maintenance Charges is just applicable when RWA has more than INR 20 lakh in turnover from furnishing maintenance services and the collections per member per month is more than INR 7,500. GST is liable to pay at 18% on the whole amount if it is more than INR 7,500.
GST Rate and HSN Code for Construction Services
| Construction Activity | Total GST Rate | HSN Code |
| Affordable housing apartment construction for projects beginning on or after 1st April 2019 | 1%* | 9954 |
| Non-affordable housing apartment construction for projects beginning on or after 1st April 2019 | 5%* | 9954 |
| Construction of commercial apartments in REP except RREP. | 12%* | 9954 |
| Works contract services (where the material is supplied by the contractor) | 12% | 9954 |
| Works contract services (where only labor is supplied by the contractor) | 18% | 9987 |
| Composite supply of works contract and goods (where the value of goods is less than 25% of the total contract value) | 18% | 9954 |
| Composite supply of works contract and goods (where the value of goods is 25% or more of the total contract value) | 12% | 9954 |
How Much GST is Charged on Construction Materials?
| Material | GST Rates |
| Sand |
|
| Mica | 12% |
| Brick | 5% – 28% |
| Cement | 28% |
| Crushed stones, pebbles, gravel | 5% |
| Granite and marble |
|
| Steel and Iron | 18% |
| Building stones | 5% |
| Tiles | 5% – 28% |
| Coal | 5% |
| Wallpaper | 28% |
| Varnish and Paint | 28% |
| Bathroom interiors and appliances |
|
| Electrical Appliances | 28% |
FAQs
Q1. How to calculate Rs 45 lakh limit while checking eligibility for an affordable housing project?
You have to consider all the charges, including preferential location, parking, development, common facility charges etc., while calculating the Rs 45 limit. However, you can exclude the stamp duty, maintenance charges, deposits for maintenance of the apartment, and maintenance of common infrastructure.
Q2.What is the GST rate for a single residential house?
GST@ 1% will be applicable if your single residential house falls under an affordable residential housing project. If it is not an affordable residential housing project, you should pay GST@ 5%
Q3.What is an ongoing project as of 1st April 2019?
- Where Commencement Certificate is required and has been issued by the competent authority on or before 31st March 2019 and the same is certified by a registered architect, chartered engineer or a licensed surveyor that the construction of the project started on or before 31st March 2019.
For example, in the case of a single tower comprising 50 floors and registered as a single project, separate commencement certificates may be issued by the competent authority. If one or two certificates are received on or before 31st March 2019 and some later, the same is still considered an ongoing project. - A Commencement Certificate where not required to be issued by the competent authority, then the same shall be issued by a registered architect, chartered engineer or a licensed surveyor that the construction of the project started on or before 31st March 2019.
- The Completion Certificate is not issued on or before 31st March 2019. For instance, if a project has three blocks and a completion certificate is received for one block prior to 1st April 2019 and the rest are received after this date. In such a case, the project is considered an ongoing project because as per the Notification issued by Government, a project is considered complete only if the Completion Certificate is issued for the entire project and not a part thereof.
- The first occupation of the project has not taken place before 31st March 2019. For instance, if an occupation certificate is received only for a part of the premises (up to 31st March 2019) in a huge project and not the entire project, the same is considered an ongoing project.
- Apartments are partly or wholly booked on or before 31st March 2019.
Q4.How to calculate GST on the under-construction property with examples?
Here’s an example of the calculation of GST on under construction flat.
Mr. Arjun purchases an under-construction property worth Rs. 80,00,000. The value of the land is Rs. 20,00,000. The construction is 75% complete and the bill was raised for 60,00,000 (80,00,000 * 75%). 75% of the total land value (15,00,000) is deducted from this amount. GST will be applicable only on the remaining value. i.e. (Rs. 60,00,000 – 15,00,000 = Rs. 45,00,000).
GST will be charged as – Rs. 45,00,000 * 5% = Rs. 2,25,000
Note: GST is paid in stages as per the value of the bill.
Q5.Does a promoter or a builder have the option to pay tax at old rates of 8% & 12% with ITC?
Yes, in the case of an ongoing project, a promoter or builder can exercise a one time option to pay tax at old rates. This should be communicated to the Jurisdictional Commissioner by 20th May 2019 in the prescribed form. If not communicated, it is deemed that they have opted for making tax payments at new rates. Also, modification of options is not allowed once submitted.
Note:
- This option needs to be exercised for each ongoing project separately. Thus, promoters may exercise different options for different ongoing projects undertaken by him.
- This option is also available for specific schemes like PMAY, Housing For All, RAY or any other housing schemes of the Central or state government.
- This option can be exercised by a promoter or a builder and not the buyer.
Q6.Can we claim GST on building construction?
Yes, you can claim GST on building construction if you are a construction company, promoter, or builder and are into the resale of buildings after construction. You can also claim ITC for the construction or purchase of a plant or machinery.
Q7.What is an affordable residential apartment?
An affordable residential apartment is one in which:
- Carpet area is up to 60 square meters for metropolitan cities;
- Carpet area is up to 90 square meters for cities and towns other than metropolitan cities and;
- The gross amount charged by the builder is not more than Rs.45 lakh.
For example, Mr A is a beneficiary of PMAY CLSS and the carpet area of his house being constructed is 150 square meters. Is he eligible for a new tax rate of 1%?
Yes, only if the developer has not exercised the option to pay tax at old rates. Here, the area in the square meter is greater than the prescribed limits but it is still considered an affordable residential apartment because Mr A is a beneficiary of PMAY CLSS.
Q8.What is a residential real estate project?
A Real Estate Project in which the carpet area of the commercial space is not more than 15% of the total carpet area of all apartments in the project.
Q9.How much GST is charged on under construction flat?
The GST rate on under-construction flats is currently 5%. This rate is applicable to the sale of under-construction or incomplete properties where the possession has not been handed over to the buyer. However, if the property falls under the affordable housing category, GST is charged at 1%.
Q10.Who is liable to pay GST on TDR and floor space index?
The promoter is liable to pay GST on a reverse charge basis on TDR or floor space index supplied on or after 1st April 2019. Even if a landowner is not engaged in a regular business of land-related activities, the transfer of development rights by such an individual to the promoter is liable to GST as it is considered a supply of service under section 7 of the CGST Act. Also, in case of outward supply of TDR by one developer to another, GST is applicable at 18% on reverse charge.
