The introduction of GST in construction services has wielded significant influence over the industry’s dynamics. Understanding the nuances of GST within construction work is pivotal for ensuring operational smoothness and financial astuteness.
54th GST Council Meeting: “To clarify that location charges or Preferential Location Charges (PLC) paid along with the consideration for the construction services of residential/commercial/industrial complex before issuance of completion certificate forms part of composite supply where the supply of construction services is the main service and PLC is naturally bundled with it and are eligible for same tax treatment as the main supply that is construction service.”
Typically, construction services are subject to an 18% GST rate, yet exceptions exist. Affordable housing projects incur a minimal 1% GST rate, while certain infrastructure endeavours like roads and bridges bear a 5% GST rate. Materials used in construction also face varying GST rates cement stands at 28%, bricks at 12%, and sand at 5%, exemplifying the diverse spectrum of taxations across different materials.
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Construction involves a multifaceted process encompassing planning, design, financing, and occupation readiness. Rather than a singular task, large-scale construction embodies a remarkable display of multitasking. Navigating the intricacies of Goods and Services Tax (GST) proves challenging for developers, contractors, and property owners in this realm.
GST Rate and HSN Code in Construction Services
GST, short for Goods and Services Tax, stands as an indirect tax that has superseded various other indirect taxes in India like excise duty, VAT, and services tax. The enactment of the Goods and Service Tax Act occurred in Parliament on March 29th, 2017, and commenced its implementation on July 1st, 2017.
This value-added tax applies to the majority of goods and services intended for domestic consumption. While consumers bear the GST, it’s the businesses vending these goods and services that remit the tax to the government.
| 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 |
Affordable housing endeavours aim to offer economical housing options to the financially disadvantaged segments of society. In support of these initiatives, the government has slashed the GST rate to 1% (without Input Tax Credit) to foster affordable housing. Precise parameters such as maximum carpet area and property value benchmarks determine the classification of housing as “affordable.”
In contrast, non-affordable housing projects face higher GST rates. Residential properties within this category are subject to a 5% GST rate, while commercial properties incur an 18% GST rate along with Input Tax Credit.
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.
GST AAR Decision in Case of M/s. llaycr Vapi Pvt. Ltd
In the case of M/s. Baycr Vapi Pvt. Ltd., 2023 (AAR) 320, the AAR clarified that the recipient of services couldn’t claim Input Tax Credit (ITC) on the CGST and SGST paid for services obtained from VEL related to the transfer of leasehold rights. This decision was grounded in Section 17(5)(d) of the CGST Act, which restricts ITC when services are used for constructing an immovable property, excluding plant and machinery, for personal or business purposes.
GST AAR’s Decision for M/s. B.G Shirke Constructions Technology Pvt Ltd
In the matter of M/s. B.G Shirke Constructions Technology Private Limited, 2021 (AAR) 272, the Karnataka Authority of Advance Ruling (AAR) upheld a 12% GST on the construction of the Airport Authority of India’s residential colony, intended for self-use or staff/employee occupancy. The Airport Authority of India, categorized as a “Governmental Authority” per Notification No.31/2017-CT(R) dated 13.10.2017, meets the outlined criteria under paragraph (iii) item number (ix). This authority operates under the Airport Authority of India Act, 1994, as a statutory body delineated in Section 12 of the Act. The construction of the residential colony for the staff and employees near Kempegowda International Airport, Devanahalli, aligns with Article 243 W of the Constitution.
ITAT Judgement for Moraj Building Concepts Pvt Ltd
In the case of Moraj Building Concepts Pvt Ltd vs DCIT, 2023 (ITAT) 802, the Income Tax Appellate Tribunal (ITAT), Mumbai bench instructed the income tax department to calculate income tax on rental income using the municipal ratable value. This was for determining the hypothetical rent concerning the unoccupied, unsold flats held by the assessee, a Builder.
Whether you’re a trailblazing developer crafting inventive projects or an eager homebuyer chasing after your dream residence, understanding GST remains a fundamental element for making informed decisions in your endeavours.
Hi Mr. Arpit, I have gone through your Article at https://blog.saginfotech.com/gst-rate-hsn-code-construction-services# It contains good information but I am still searching for answers to some of my questions on GST. Your blog provides enormous information for a person in the know. However, for a layman like me I could not find pointed answers to my question, hence reaching out to you for guidance. I have signed a turn-key agreement (a single agreement) with a construction company. Land is mine and they will construct the house and hand it over to me with complete interiors like wardrobes, kitchen etc. Now my question is on GST. They are raising bills to me with 18% GST, but without showing any details like material or labor used.
My question is 1. Since this is a single residential unit, as per “Notification No. 12/2017 from 28 June 2017, where it says that such units are free from GST”. Is this statement correct or has it been changed, so that such properties attract GST now? 2. If I have to pay GST, how much GST do I need to pay 5% overall as non-affordable housing or 12% or 18% 3. Should I be paying GST on a lump sum amount without any breakup given or should I expect complete breakdown of material, labor and GST charges.
Request your help to answer these three questions. Thank You very much in advance.
Dear sir, we are not providing consultancy services so better it is to discuss the same with GST Practitioner
Pure labour service: GST nil