The Indian construction industry is one of the largest in the world, contributing significantly to GDP and employment. Since the rollout of Goods and Services Tax (GST) in July 2017, the sector has undergone significant taxation reforms. The aim was to unify a complicated web of indirect taxes and bring transparency and simplicity.

However, GST on construction remains a complex topic due to multiple factors like property type, construction status, and nature of the project. This comprehensive guide breaks down the applicability, rates, input tax credit rules, and compliance requirements involved.

🔎 Understanding Construction Under GST

Construction services under GST generally fall under the category of a “works contract” when goods and labor are supplied together for construction.

According to Section 2(119) of the CGST Act, “works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, or alteration of any immovable property involving the transfer of property in goods (whether as goods or in some other form).

This definition is key to determining the applicability of GST.

📌 Applicability of GST on Construction Services

✅ 1. Under-Construction Property

• GST is applicable only if the property is sold before obtaining a Completion Certificate (CC) or Occupancy Certificate (OC).

• Sale of flats, apartments, or commercial spaces during construction is treated as a supply of service and attracts GST.

✅ 2. Ready-to-Move-In Property (After Completion)

• No GST is applicable on the sale of property after the CC or OC is issued.

• Such sale is treated as a sale of immovable property and does not constitute a supply under GST law.

✅ 3. Affordable Housing Projects

• Special GST rate benefits are available.

• To qualify, the project must meet the criteria under PMAY (Pradhan Mantri Awas Yojana) or other schemes as notified.

✅ 4. Commercial Construction

• GST is fully applicable for sale or lease of shops, offices, malls, etc., whether under-construction or completed.

✅ 5. Government Contracts / Infrastructure Projects

• Construction services provided to government, PSU, or local authorities also attract GST under specific conditions.

• Concessional rates may apply in some infrastructure and public welfare projects.

📊 GST Rates on Construction Services (As on July 2025)

💡 Affordable Housing Definition (as per Notification No. 03/2019-Central Tax):

• Residential unit with carpet area ≤ 60 sq. m in metro / 90 sq. m in non-metro

• Value ≤ ₹45 lakh

🔄 Input Tax Credit (ITC) – Allowed or Not?

🚫 No ITC for Residential Projects (1% or 5%)

• Builders cannot claim ITC if they opt for the reduced GST rate under the new scheme (April 1, 2019 onwards).

• The idea was to simplify tax calculations and reduce refund claims, though it increases construction cost due to blocked credit.

✅ ITC Allowed for Commercial and Certain Works Contracts

• Full ITC is available when charging 12% or 18% GST.

• Can claim ITC on:

  • Cement

  • Steel

  • Tiles

  • Electrical fittings

  • Subcontractor bills

🔁 Reversal of ITC (Transition Projects)

• For projects straddling both pre- and post-April 2019 regimes, builders must reverse ITC proportionally as per prescribed formulas.

🧾 GST Compliance for Builders & Contractors

🧩 Key Compliance Requirements

🧮 Example Calculation

Suppose you buy an under-construction apartment for ₹60 lakh (non-affordable segment):

• Deduct land component (1/3rd): ₹20 lakh

• Taxable amount = ₹40 lakh

• GST @ 5% = ₹2 lakh

• Total price payable = ₹62 lakh

Note: This GST is collected by the builder and deposited with the government.

🏁 Conclusion