GST on construction material has rationalized the taxation system and subsumed various state and Central government taxes. The government also levies GST on construction contracts. Before July 2017, the tax levied on the goods and services was complex, as there were numerous taxes imposed on the goods and their services.

However, the introduction of GST has made the process simpler by eradicating excise duties, Octroi, VAT, customs duties, etc. The basic needs of the person include food, shelter, and apparel.

It is essential to have in-depth GST on construction as this sector employs approximately thirty million people across the country. Moreover, contributing two hundred billion worth of assets every year. To govern the activities taken under construction, the concept of Works Contract has been introduced.

Central taxes include Service tax, excise duty, central sale tax, customs duty, central surcharge and cess, etc.

Apart from these, various state taxes like VAT, luxury tax, entertainment tax, purchase tax, state excise duty besides, taxes on gambling, advertisement, lotteries, betting, surcharge and cess charges. Hence, one can conclude that this reform has subsumed numerous indirect taxes, offering an equivalent regime to all the taxpayers.

 

GST on Construction

Only the cost of construction should be considered for GST, Not the land: Gujarat High Court

July 28: In a major relief to the homebuyers, the Gujarat High Court has held that the GST on construction is payable only on the cost of construction and not on the cost of land. Disposing of a case related to GST on construction, the HC observed that it is the cost of construction that must be considered for leaving the Goods and Services Tax or GST on construction. The cost of land will not be taxed.

The court ruled that during the sale of a commercial plot, villa or flat, the actual land value or the undivided share is not liable for GST. The land used for the construction is not subject to GST. Only the construction cost must be considered. The judgement comes as a relief for the homebuyers who were charged the GST on the basis of the land value.

 

What do you understand by the Works Contract in GST on Construction?

The works contract is a broad concept involving the agreements related to constructing a structure on a property. In addition, it involves the details of the raw materials and products used while undertaking the completion of any project.

For example, the GST on construction of residential houses will include the rate of bricks, cement, painting, wallpaper, bathroom fitting, etc. The GST on construction contracts comprises of activities such as:

Building

Construction

Fabrication

Erection

Completion

Fitting out

Installation

Improvement

Modification

Maintenance

Repair

Renovation

Commissioning and alteration of immovable property and transferring of properties in good

The structures/buildings that are part of GST on construction contracts are:

Apartment

Residential complex

Single residential units

Industrial buildings

Multi and single-story buildings

Administrative and commercial buildings

 

What are the different rates of GST on construction materials?

There are varieties of materials used at the construction sites, including cement, sand, bricks, marbles etc. Hence, a proper taxation system was introduced to manage the costing of these goods.

However, GST on construction material varies based on the material used, which still makes the calculations hefty for the dealers and buyers. Here is an overview of these rates:

Search how to calculate GST under construction property with examples if you face trouble understanding how to use these rates.

Material	GST Rates
Sand	1.     Asphaltic rocks, oil shale/bituminous, tar sand, natural asphaltites, asphalt-18% 2.     Natural sand-5%
Mica	12%
Brick	5% - 28%
Cement	28%
Crushed stones, pebbles, gravel	5%
Granite & Marble	1.     Blocks- 12% 2.     Not in Blocks- 28%
Steel & Iron	18%
Building Stones	5%
Tiles	5% - 28%
Coal	5%
Wallpaper	28%
Varnish & Paint	28%
Bathroom interiors & appliances	1.     Pipes and tubes, fitting- 18% 2.     Other items- 28%
Electrical Appliances	28%

 

What are immovable and movable properties?

To calculate the rate of GST on construction contracts, one needs to have prior knowledge of the type of property it is. As per the General Clauses Act, 1897, Section 3 discusses the property type. In Section 3 (26), it is clearly stated that anything attached to or evolved from beneficial land falls under the category of immovable goods.

Whereas, in Section 3 (36), all other items like jewelry, books, utensils, etc., are considered movable properties. In addition, corps, grasses, and standing timbers are also included in movable properties.

It is to be noted that any property in which one can readily move without any repair, renovation, or work does not require paying GST on construction material, services, contracts, etc. Apart from this situation, people entitled to selling and construction of building/resultant have to pay GST as mentioned in GST on construction contracts.

Taxation Rates for Residential and Commercial Properties (GST on Construction)

Sr. No.	Nature of Service	Gross Rate	Effective Rate
1	Affordable residential apartment in a RREP (Commenced on or after 01.04.2019 or ongoing projects opted for new rates) intended for sale.	1.5%	1%
2	Residential apartment (other affordable residential apartments) in a RREP (commenced on or after 01.04.2019) or ongoing projects opted for new rates), intended for sale.	7.5%	1%
3	Commercial Apartments in a RREP (commenced on or after 01.04.2019 or ongoing projects opted for new rates) intended for sale.	7.5%	5%
4	Affordable residential apartment in REP, other than in a RREP (commenced on or after 01.04.2019, or ongoing projects opted for new rates), intended for sale.	1.5%	1%
5	Residential apartment (other than affordable residential apartments) in  REP other than in a RREP (Commenced on or after 01.04.2019, or ongoing projects opted for new rates) intended for sale.	7.5%	5%
6	Ongoing projects in specified schemes (of lower rate of tax) where the promoter has not opted for new rates.	12%	8%
7	Commercial Apartments in REP other than in RREP.	18%	12%
8	Ongoing Residential apartments as on 31.03.2019 , other then affordable residential apartments, where promoter has chosen to pay at old rates (other than mentioned from 1 to 6 above).	18%	12%

 

GST rate on construction services and materials

In general, the GST rate on construction services is 18%. However, this rate varies in the construction sector as for affordable housing; it is 1%. Further, the input service and construction materials rate is 18%, while other segments have 5%. In the case of ITC incidence, the GST rate on construction services ranges from 8% - 10%.

For example, to calculate GST on under construction property:

Suppose the material and labor cost you 75 INR.; hence, the tax on 45% of this material and labor will be 33.75 INR. The value of GST on construction contracts will be evaluated at the rate of eighteen percent GST, making the amount 6.075 INR.

If the profit is 25 INR, then the total sale amount before tax becomes 106.43 INR. This increases to 111.75 INR after imposing 5% GST on construction and no ITC.

Apart from this, many tutorials will tell you how to calculate GST under construction property with examples. Various materials are required, from setting the foundation of the building to adorning it. The rates of GST on construction materials vary; some of these materials used for construction are:

 

Cement: Irrespective of the type of cement, including aluminous, slag, portland, hydraulic, or super sulfate types of cement, the rate is 12%

 

Sand: The sand type used may, and so does its rate. For instance, GST on construction materials such as tar sand, oil shale or bituminous, asphalt, asphaltic rocks, natural asphaltites, bitumen is 18%. But in the case of natural sand or any other type of metal-bearing sand, this rate decreases to 5%.

 

Pebbles, crushed stones & gravels: The rate of GST on the construction of residential houses and other structures is 5%.

 

Bricks: Building bricks, fly-ash, siliceous, or other fossil-made bricks are available at the rate of 5%. However, this has been increased to 12% and will be implemented from 1 April 2022.

Besides, tiles, ceramic goods, and refractory bricks are available at the rate of 18%. GST on under construction property where materials composed of cement, glass-based blocks used for paving, concrete, artificial bricks can reach up to 28%.

 

Marble and granite: The GST on these materials is 12% and 28% for the blocks and those that are not structured in blocks, respectively.

 

Building stones: 5% GST is levied on slabs and blocks made up of basalt, porphyry, sandstone, or other such building stones.

 

Coal: 5% GST is paid by the buyer.

 

Steel and iron: The products of these materials are available in rolls, wires, blocks, etc., at the rate of 18%.

 

Mica: 12% GST is levied.

 

Tiles: Different types of tiles have different GST rates; in the case of bamboo flooring and roofing/ earthen flooring tiles, it is 18% and 5%, respectively. On the other hand, cement tiles, plastic flooring or artificial flooring tiles, concrete tiles, etc. Can add 28% of GST to your amount.

 

Interiors: Wallpapers, paint, enamels, varnish, electrical appliances, parts, etc., levied 28% on the buyer. Besides, bathroom necessities like the sink, urinals, flushing cisterns, bidets, baths, etc., also have the same GST rate. But pipe and tube fittings such as elbows or sleeves composed of iron, steel, plastic, copper, nickel, aluminum have an 18% GST rate.