Since the introduction of the Goods and Services Tax (GST), 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. You must have lot of doubts regarding the GST on construction work.

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 don’t 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 paragraph (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 & 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/enhancement services provided by pure labour contracts under the Pradhan Mantri Awas Yojana (PMAY) are exempt from GST. Construction services by pure labour 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.

GST Rate and HSN Code for Construction Activity

GST rate & HSN code for different types of construction activity in India:

After reducing the 1/3rd towards land component from 1.5%, 7.5% & 18%.

How Much GST is Charged on Construction Materials?

The GST on construction materials depends on specific items:

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, such expenses are not eligible for ITC.