Rohan is a skilled writer who excels at simplifying complex legal concepts into clear, practical guidance. Her articles equip entrepreneurs with the essential knowledge to navigate business laws confidently, helping them successfully launch and manage their ventures
Construction is a multifaceted process involving planning, design, financing, and execution, culminating in a structure ready for use. Large-scale projects, in particular, demand complex coordination across multiple teams and functions. Amidst these challenges, navigating the Goods and Services Tax (GST) regime has become a critical concern for developers, contractors, and property owners. Since its introduction, GST has significantly reshaped the construction industry, influencing everything from cost estimation to project execution. A clear understanding of how GST applies to construction work is essential for smooth operations and sound financial management. This article provides comprehensive insights into the application of GST in the construction sector, helping you stay informed and compliant
Latest Updates
21st December 2024
Key Recommendations from the 55th GST Council Meeting on Construction Materials
GST Reduction for AAC Blocks: Autoclaved Aerated Concrete (AAC) Blocks containing more than 50% fly ash have been reclassified under HS Code 6815, resulting in a GST rate reduction from 18% to 12%. This move makes these eco-friendly construction materials more affordable.
Amendment to Section 17(5)(d) of the CGST Act: The phrase “plant or machinery” has been amended to “plant and machinery”, with retrospective effect from July 1, 2017. This change aligns the law with the explanations provided at the end of Section 17, ensuring greater clarity and consistency.
3rd October 2024
Supreme Court Ruling on GST Input Tax Credit for Construction
The Supreme Court has clarified the eligibility criteria for claiming Input Tax Credit (ITC) on construction expenses under GST, specifically related to rental services used for commercial purposes:
Construction Essential for Commercial Use: If the construction of a building is necessary for providing services such as leasing or renting for commercial activities, it qualifies under the ‘plant’ exception outlined in Section 17(5)(d) of the CGST Act.
Implications of Section 17(5)(d): While ITC claims on construction materials for immovable property are generally disallowed, the exception for plant and machinery permits businesses to claim ITC if the property is used for delivering commercial services
Applicability of GST on Construction in India
Goods and Services Tax (GST) plays a crucial role in regulating the taxation of construction activities across India. Understanding when and how GST applies is essential for stakeholders in the construction industry to ensure compliance and manage their tax liabilities effectively. Below are the key points regarding GST applicability in construction:
Types of Construction Activities Covered by GST
Private Construction: Residential projects built for individual use, such as single-family homes and villas.
Commercial Construction: Buildings constructed for business use, including offices, retail outlets, hotels, and shopping malls.
Residential Complexes: Development of apartments, housing societies, and large residential complexes.
GST on Under-Construction Properties
Classified as Supply of Service: Properties that are under construction and intended for sale are considered a supply of service under GST law.
GST Liability: Developers and contractors must charge GST on the value of the under-construction property. The applicable tax is determined based on the stage of construction and the property’s value.
GST Exemption for Completed Properties
Ready-to-Sell Properties: Fully constructed and completed properties available for immediate sale are exempt from GST. Since these are no longer under construction, GST does not apply
Factors Influencing GST Applicability on Construction Services
Type of Construction:
Residential vs. Commercial: GST rates and regulations can differ based on whether the construction project is residential, commercial, or industrial in nature.
Nature of the Transaction:
Sale: The direct sale of under-construction properties is subject to GST.
Leasing/Renting: Construction intended for leasing or renting, particularly for commercial purposes, may have distinct GST provisions.
Additional Services: Ancillary or related services connected to construction may also attract GST.
Status of the Parties Involved:
Buyers and Sellers: Their roles and relationship influence the GST liabilities.
Contractors: Responsible for charging and remitting GST on the construction services they provide.
Other Stakeholders: Investors, agents, and intermediaries may have specific GST obligations depending on their involvement
Exemptions and Concessions under GST Law for Construction
Several exemptions and concessional GST rates are available to support the construction sector:
Affordable Housing Projects: Construction of affordable housing attracts a concessional GST rate of 1%. This applies to residential properties with a carpet area up to 60 sq. meters in metropolitan cities and up to 90 sq. meters in non-metropolitan areas, priced at ₹45 lakhs or less.
Property Resale: GST is not applicable on the resale of completed properties.
Buying/Selling Apartments for Residential Use: Transactions involving the purchase or sale of apartments intended solely for residential purposes are exempt from GST.
Buying/Selling Land: Sale or purchase of land is exempt from GST.
Pradhan Mantri Awas Yojana (PMAY): Construction or improvement services carried out through pure labour contracts under PMAY are exempt from GST.
Single Residential Units: Construction services provided through pure labour contracts for a single residential unit or part of a residential complex are also GST-exempt.
Additional GST Compliance Requirements for Construction Services
e-Way Bills: Mandatory for transporting building materials like cement and steel only if the consignment value exceeds ₹50,000.
Invoicing: Registered businesses supplying construction services must issue GST-compliant invoices
GST Rates for Construction Services
The standard GST rate on construction services is 18%, with some important exceptions:
Affordable Housing Projects: Eligible for a concessional GST rate of 1%.
Infrastructure Projects: Construction of roads, bridges, and similar infrastructure attracts a reduced GST rate of 5%.
GST rates on construction materials vary by type:
Cement: 28%
Bricks: 12%
Sand: 5%
GST Rates and HSN Codes for Construction Services
Understanding the correct GST rates and Harmonized System of Nomenclature (HSN) codes for various construction activities is crucial for compliance and accurate tax calculation. Below is a detailed summary of the applicable GST rates along with their corresponding HSN codes for different construction services in India:
| Construction Activity | GST Rate | HSN Code |
|---|---|---|
| Affordable housing apartment construction (projects starting on or after 1st April 2019) | 1% | 9954 |
| Non-affordable housing apartment construction (projects starting on or after 1st April 2019) | 5% | 9954 |
| Construction of commercial apartments in Real Estate Projects (except RREP) | 12% | 9954 |
| Works contract services (material supplied by contractor) | 12% | 9954 |
| Works contract services (labour-only contracts) | 18% | 9987 |
| Composite supply of works contract and goods (goods value < 25% of total contract value) | 18% | 9954 |
| Composite supply of works contract and goods (goods value ≥ 25% of total contract value) | 12% | 9954 |
Note: The above GST rates are adjusted after deducting one-third of the value attributable to land from the standard rates of 1.5%, 7.5%, and 18%
GST on Construction Materials
For developers, contractors, and property owners, understanding the applicable Goods and Services Tax (GST) rates on construction materials is crucial for cost management and compliance. Below is a detailed overview of GST rates for various construction materials as of 2025:
| Construction Material | GST Rate |
|---|---|
| Sand | 5% |
| Natural Sand | 5% |
| Oil Shale, Bituminous, Asphalt, Asphaltic Rocks, Natural Tar Sand | 18% |
| Crushed Stones, Pebbles, Gravel | 5% |
| Building Stones | 5% |
| Coal | 5% |
| Brick | 5% – 28% |
| Tiles | 5% – 28% |
| Mica | 12% |
| Granite and Marble Blocks | 12% |
| Granite and Marble (Not in Blocks) | 28% |
| Steel and Iron | 18% |
| Pipes, Tubes, and Fittings | 18% |
| Cement | 28% |
| Wallpaper | 28% |
| Varnish and Paint | 28% |
| Electrical Appliances | 28% |
| Bathroom Interiors and Appliances | Pipes and Fittings: 18% |
| Other Construction Materials | 28% |
GST on Under-Construction Property
When buying an under-construction property, it’s important to understand how Goods and Services Tax (GST) is applied. The total GST payable includes two parts: the service component (construction services) and the material component (construction materials). Below is a simple guide to calculating GST on an under-construction property with an example.
1. Service Component
The GST rate on construction services depends on the project type:
Standard Projects: 18% GST
Affordable Housing Projects: 1% GST
2. Material Component
The GST on construction materials varies by item but is generally charged at 18%.
Example Calculation
Agreement Value: ₹50,00,000 (standard project)
Cost of Construction Materials: ₹10,00,000
GST on Service Component:
18% of ₹50,00,000 = ₹9,00,000
GST on Material Component:
18% of ₹10,00,000 = ₹1,80,000
Total GST Payable:
₹9,00,000 + ₹1,80,000 = ₹10,80,000
ITC Availability on GST Paid During Construction
For developers, contractors, and property owners, understanding when Input Tax Credit (ITC) can be claimed on GST paid during construction is essential. According to Section 17(5), clauses (c) and (d) of the CGST Act, ITC is restricted in certain cases:
Work Contract Services for Immovable Property
Not Eligible for ITC: GST paid on work contract services specifically for constructing immovable property generally cannot be claimed as ITC.
Exception: ITC is allowed on input services used to complete the supply of work contract services or for the construction of plants and machinery.
Renovation or Repair
Not Eligible for ITC: GST paid on renovation or repair of immovable property is also not eligible for ITC.
Despite these restrictions, builders, developers, and promoters can still claim ITC for eligible inputs under the specified exceptions.
Supreme Court Ruling (3rd October 2024)
On October 3, 2024, the Supreme Court clarified the eligibility of ITC on construction expenses related to commercial rental services. Key points from the ruling include:
ITC Eligibility for Commercial Rentals: If the construction of a building is necessary for providing services such as leasing or renting for commercial purposes, the GST paid is eligible for ITC.
‘Plant’ Exception: This falls under the ‘plant’ exception mentioned in Section 17(5)(d) of the CGST Act, which allows ITC claims on construction materials used for building plants and machinery, even though ITC is generally restricted for immovable property construction
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About the Author
Rohan
May 31, 2025
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