The Goods and Services Tax (GST) on construction has evolved the operating mechanism of construction industry. GST is a tax imposed on the sale of goods and services, and it also applies to construction services. It is important for builders, contractors, and homebuyers to understand the GST rates on different types of construction services and materials, especially in 2024 and 2025. 

By knowing these rates would help you to understand cost and plan your construction activity more efficiently.

What is GST on Construction Work?

GST on construction work is imposed on the man power and the construction material involved. The tax depends on the class of a property, whether it's residential, commercial, or infrastructure projects like roads and schools.

GST on Construction Services and Materials

Construction Services: Construction services provided by builders or contractors attract GST, typically at a rate of 18%. However, specific projects may have different rates, such as affordable housing, which is taxed at a lower rate.
Construction Materials: Materials used in construction like cement, bricks, and steel also attract GST, and the rate can range from 5% to 28%. Here's a look at the common materials used in construction and their GST rates:

     •  Cement: 28% GST
     •  Steel and Iron: 18% GST
     •  Bricks: 5% GST
     •  Tiles and Ceramics: 18% GST
     •  Paint and Varnishes: 18% GST

These rates help builders calculate the cost of materials and ensure proper tax compliance.

GST on Construction of Residential Properties

Gst on residential projects are also imposed as per their types. There are different GST rates for affordable and non-affordable housing projects.

Affordable Housing: If the project is considered affordable (properties priced under Rs. 45 lakh), GST is 1% (without Input Tax Credit or ITC).
Other Residential Projects: For standard residential construction (not affordable housing), the GST rate is 5% (without ITC). However, if the builder opts for the old GST scheme, the rate could be 18%.

GST on Construction of Commercial Buildings

GST on Commercial Construction: When constructing a commercial building or complex, the GST rate is generally 12%, including ITC (input tax Credit). It means the builders can claim their taxes back paid on the materials..
GST on ATS (Apartments): For construction projects related to ATS (Apartments), the GST rates are specific and depend on whether the apartment is part of affordable housing or not. Typically, the GST rate for under-construction ATS (for non-affordable properties) is 5% (without ITC).

GST on Construction Labor Charges

Labour charges attaracts 18 percent gst under works contract category. This applies to labor services provided for construction, maintenance, or repair.

GST on Construction of Roads and Schools

Infrastructure projects such as roads and schools often attract different GST treatment based on the government policies or project specifics. Generally, GST on construction for road projects is 12%, while the rate for school buildings may fall under the 18% bracket depending on the project's classification.

What is GST on Under Construction ATS?

When it comes to under-construction ATS, the GST rate is typically 5% (without ITC). However, this rate applies only to residential and commercial projects that are still under construction. Once the property is ready for possession, GST does not apply.

GST on Under Construction Apartments: The GST on under-construction apartments is 5% (excluding ITC). For affordable housing, the rate is much lower at 1%.

What is the GST Rate on Building Materials?

Building materials such as cement, bricks, steel, and glass are taxed under GST. The rates vary depending on the material used.

     • Cement: 28%
     • Bricks: 5% (increased from 12% after April 2022)
     • Steel: 18%
     • Tiles: 18%
     • Glass: 18%

These rates affect the overall cost of construction as builders and contractors need to factor in these taxes when purchasing materials.

Is GST Applicable on Builders?

Yes, GST is applicable on builders. Builders must charge GST for services provided in the construction of residential, commercial, and infrastructure properties. The GST rate depends on the type of construction being carried out, as explained earlier.

GST on Builders' Services: Builders must charge 18% GST on their services, except for affordable housing projects, which are taxed at 1%.

Can GST Be Claimed on Building Construction?

In most cases, GST on building construction can be claimed by contractors, especially if they are registered for GST and the project allows for Input Tax Credit (ITC). However, in cases where ITC is not available (like affordable housing), the builder cannot claim the tax back.

GST Rate for Contractors

      •   The GST for contractors varies depending on the nature of the construction work.
      •   Works Contract with Materials: If a contractor supplies both materials and labor, the GST rate is 12%.
      •   Labor-Only Works Contract: For labor-only contracts, the GST rate is 18%.
      •   Contractors need to understand these rates to calculate the GST payable on their services.

GST on Works Contract

A works contract is a contract for construction, installation, or repair services. The GST rate on works contracts can be:

     •   18% GST on works contracts for labor services and materials.
     •   12% GST if the supply of goods is less than 25% of the contract value.

The tax is calculated based on the contract type and materials used in the project.

What is the GST Rate for Construction Work Contracts?

For construction work contracts, GST is generally 18% for labor and material contracts. However, in specific cases, like affordable housing, the rate can be reduced.

Residential Projects: Typically 5% (without ITC) for under-construction apartments, and 1% for affordable housing.
Commercial Projects: The rate is 12% with ITC.
GST Rates for Construction Services to Government

Construction services provided to the government may attract different GST rates depending on the nature of the project.

GST on Government Construction: In the case of government projects such as the construction of roads or schools, the GST rate generally ranges from 12% to 18%, depending on the contract and materials used.

Challenges with GST on Construction

While GST simplifies the taxation system, it can be challenging for small builders and contractors to comply with the different tax rates. Some common challenges include:

Compliance Issues: Small contractors may struggle to understand GST regulations and comply with them.
Cash Flow Problems: Contractors often face cash flow issues when they have to pay GST on an accrual basis, even before receiving payment from clients.
Classification Confusion: Correctly classifying materials and services for the right GST rate can be difficult.

Legal Judgements on GST in Construction

Gujarat High Court: In a case, the Gujarat High Court ruled that GST should only apply to the cost of construction and not on the value of land.
Input Tax Credit on Prefabricated Structures: The Telangana Authority of Advance Ruling (AAR) stated that ITC cannot be claimed on prefabricated structures since they are considered immovable properties.

Conclusion

Understanding GST on construction in 2024 and 2025 is important for builders, contractors, and homebuyers to manage costs and ensure compliance. The GST rates vary depending on the type of project, materials, and whether it's residential or commercial.

By understanding these tax rates, one can plan better for construction costs and avoid any legal issues. Whether it's for a single residential unit, road construction, or school building, knowing the right GST rates is crucial to success in the construction industry.