In terms of Section 2 (119) of the CGST Act, 2017 as a ‘work contract’ means a contract of construction, building, fabrication, completion, fitting out, installation, erection, development, repair, renovation, modification, alteration, maintenance, or authorization of any immovable property where the transfer of goods (either by goods or otherwise) is involved in the execution of that contract. This article will provide an insight on GST on construction.
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GST on Construction Sector
Before the introduction of GST in construction, many complex and separate Tax provisions were in place. Any construction project, officially called a ‘work contract’, involves the supply of goods (building materials) and the supply of services (actual building work that involves building or repairing a structure). Both of these activities were taxed separately and when a new product appeared after the completion of a contract of employment, Central Excise was added to it as well. GST focuses on simplifying the need for different types of Taxes, introducing just one National Tax by eliminating the differences in the Tax Rates of the various states in the country.
GST prices applicable to residential construction
As of 01-04-2019, the applicable GST standard for residential development by developers for a real estate project is as follows:
- Affordable housing construction- 1% excluding ITC on total consideration.
- Construction of residential apartments other than affordable housing- 5% excluding ITC on total consideration.
Affordable Housing Project
An affordable residential apartment is an apartment for a residential project that starts on or after 01-04-2019, or for an ongoing project in respect of its promoters opting for a new 1% carpet with up to 60 sq. Meters (646 sq. ft) in metropolitan cities and 90 square meters (969 sq. ft) in major cities or suburbs and the total amount charged for, the builder shall not exceed Rs. 45 lakhs.
Rates of GST for Construction Services
The rates of GST for construction services are as follows-
- 18% In the construction of a complex, building, civil building, or part thereof including complex buildings or premises intended to be sold to a consumer, in whole or in part.
- 12% Construction of complex, buildings, etc intended for sale to the buyer with the land.
- The GST Council has approved a plan to change the value of 5% of under-construction flats, as well as 1% on affordable housing.
Developers of incomplete residential projects from 31 March 2019, will have the option to select an old building with ITC or switch to new rates of 5% and 1%, excluding ITC.
Taxes applicable are shown as below-
| Service Nature | Gross rate (%) | Effective rate (%) |
| Affordable accommodation at RREP (Started on or after 01.04.2019 or continuous projects selected for new rates) intended for sale | 1.5 | 1 |
| RREP apartment (other affordable residences) (started on or after 01.04.2019) or ongoing projects selected for new rates, intended for sale | 7.5 | 5 |
| Commercial Flats within RREP (started on 01.04.2019 or later or ongoing projects selected for new rates) intended for sale | 7.5 | 5 |
| Affordable apartment in REP, excluding RREP (starting or later) 01.04.2019, or ongoing projects select new rates), intended for sale | 1.5 | 1 |
| Residential apartment (excluding affordable accommodation) REP other than RREP (Started or later 01.04.2019, or projects continuously selected new rates) intended for sale | 7.5 | 5 |
| Ongoing projects in specified programs (low tax rate) where the promoter did not select new rates | 12 | 8 |
| Commercial Apartments REP other than RREP | 18 | 12 |
| Residential Apartments from 31.03.2019, other affordable residential apartments, where the promoter opted to pay at old rates (excluding S.No1 to 6 above) | 18 | 12 |
Final words
In terms of the Goods and Services Tax (GST), the construction of a building, civil structure, complex, or part thereof, including those structures or complexes intended for sale to a consumer is covered under a service provider and therefore a liability for goods and service tax (GST) arises. However, no GST is intended for payment when it is ready to enter or the building is completed in terms of the CGST Act, 2017. GST on construction is payable only for construction houses.
