Construction is a vital sector contributing significantly to India's GDP. However, it is also one of the most regulated industries, especially when it comes to indirect taxation. With the advent of the Goods and Services Tax (GST), the landscape of tax compliance in construction services has changed drastically. This article delves into the applicability of GST on construction services, the tax rates involved, and compliance requirements associated with it.

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1. What is Covered Under Construction Services in GST?                             

• Construction of residential or commercial buildings

• Complexes or part thereof (for sale)

• Civil structures

• Infrastructure projects (like roads, bridges, pipelines)

• Works contract services

According to Notification No. 11/2017-Central Tax (Rate) dated 28th June 2017, construction services fall under the Heading 9954 of the GST Tariff.

2. GST Applicability on Construction Services

📌 a) Construction of Residential Units for Sale

If a builder is selling apartments before completion, then GST is applicable. However, if the sale is made after receiving the Completion Certificate (CC) or after first occupancy, no GST is applicable.

📌 b) Works Contract Services

Works contract is treated as a composite supply of goods and services under GST. It is taxed accordingly and involves special compliance requirements.

📌 c) Input Tax Credit (ITC)

• For affordable housing projects, ITC is not allowed.

• For non-affordable housing, ITC was allowed earlier but now restricted post the rate changes effective from April 1, 2019.

📊 3. GST Rates on Construction Services (As of 2025)                                                                            

Affordable housing is defined as:

• Carpet area up to 60 sq. m (metros) and 90 sq. m (non-metros)

• Value not exceeding ₹45 lakhs

🏢 4. Composition Scheme for Builders & Developers

The composition scheme is not available for construction services, especially where there is a transfer of property in goods (works contract). Builders must register under the regular scheme and comply with monthly GSTR filings.

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⚠️ 5. Reverse Charge Mechanism (RCM) in Construction

RCM is applicable in the following cases:

• Supply from an unregistered person to a registered builder (RCM on inward supply of goods/services).

• Promoters are liable to pay GST under RCM on cement (28%) and capital goods when purchased from unregistered vendors.

📁 6. GST Compliance for Construction Companies                                                             

Every construction company or builder registered under GST must:

✅ File GSTR-1, GSTR-3B monthly/quarterly
✅ Maintain input-output reconciliation
✅ Pay GST on time to avoid interest and penalties
✅ Issue GST-compliant invoices

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7. GST on Joint Development Agreements (JDA)

Under JDA, landowner and developer collaborate — GST implications arise based on the transfer of development rights:

• As per Notification No. 4/2018, GST is payable by the developer under RCM when development rights are transferred to him.

• Time of supply is when possession is handed over.

This is a complex area — Speak to our experts for customized advice.

🛠️ 8. GST on Construction Materials

📢 Conclusion

Understanding the applicability and correct tax rates under GST is crucial for the construction industry. With multiple rate slabs, ITC restrictions, and RCM obligations, compliance can become a challenge. Whether you’re a small developer or a major contractor, having the right guidance ensures you remain tax-efficient and penalty-free.                                               

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👉 Visit TAXAJ – GST Services for Construction

Created & Posted by Twinkle Jha

Operations Head at TAXAJ

TAXAJ is a consortium of CA, CS, Advocates & Professionals from specific fields to provide you a One Stop Solution for all your Business, Financial, Taxation & Legal Matters under One Roof. Some of them are: Launch Your Start-Up Company/Business, Trademark & Brand Registration, Digital Marketing, E-Stamp Paper Online, Closure of Business, Legal Services, Payroll Services, etc. For any further queries related to this or anything else visit TAXAJ

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