GST on Construction Services and Materials: Applicability, GST Rate and HSN Code

Since the introduction of the GST (Goods and Services Tax), 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 a lot of doubts regarding the GST on construction work. This article talks about all you need to know about GST on construction. 

Latest Updates on ITC

3rd October 2024
The Supreme Court clarifies GST input tax credit can be claimed on construction for rental services for commercial purpose. The apex Court ruled that if a building’s construction is essential for providing services like leasing or renting for commercial activity, it could fall under the ‘plant’ exception to Section 17(5)(d) of the CGST Act. Section 17(5)(d) of the CGST Act prohibits ITC claims on construction materials used in construction of immovable property except for plant and machinery.

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 do not 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 para (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 and 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 or enhancement services provided through pure labor contracts under the Pradhan Mantri Awas Yojana (PMAY) are exempt from GST. 
• Construction services through pure labor 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 Services 

GST rate and HSN code for different types of construction activities in India:

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

However, there are certain conditions that you need to fulfill to avail of the scheme. Read more.

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 or construction of plants and machinery, such expenses are not eligible for ITC. 
• ITC cannot be claimed in the case of renovation or repair of the property. 

Note: Construction companies, builders, and promoters can claim ITC for the above expenses.

As per an update dated 3rd October 2024, the Supreme Court clarifies GST input tax credit can be claimed on construction for rental services for commercial purpose. The apex Court ruled that if a building’s construction is essential for providing services like leasing or renting for commercial activity, it could fall under the ‘plant’ exception to Section 17(5)(d) of the CGST Act. Section 17(5)(d) of the CGST Act prohibits ITC claims on construction materials used in construction of immovable property except for plant and machinery.