In the construction sector, the GST revisions taking effect from July 2022 are the talk of the town. From household supplies to businesses and services, the new slab has taken a toll on major areas subject to taxation. Its effect on the construction market has a mixed impact—the GST rates are higher, certain entries are omitted and yet, the taxation process is simplified.
In general, the Goods and Services Tax (GST) combines the multiple central and state taxes for a simpler process where exercise duties, custom duties, Octroi and more are eliminated to bring everything under a single umbrella.
Central taxes include
· Service tax
· Excise duty
· Central sale tax
· Customs duty
· Central surcharge
State taxes include
· VAT (Value Added Tax)
· Entertainment tax
· Purchase tax
· State excise duty
· Taxes on advertising, lotteries, surcharges, and cess charges.
These taxes are levied on different items under various clauses in the notifications issued by CBIC in accordance with the Central goods and services Act 2017.
All about Central goods and Services Act 2017
The Central Goods and Services Tax Act makes provisions for the collection of taxes on goods and services by the government. In accordance with it, the central government collects CGST (Central Goods and Services Tax) while the state government collects SGST (State Goods and Services Tax).
For construction materials and services, GST is generally imposed at 18%—which varies as per the type of construction mentioned below:
· Housing projects
· Government projects
· Road and Railway projects
· Infrastructure projects etc.
The contract works on these project typologies are subject to different GST rates depending on the nature of work, development rights, schemes and other specifications.
“Works Contract” in simple terms:
Works Contract includes all agreements made for the construction of a structure on a site or plot. It includes:
· Specification of raw materials
· Products used in the process
· Type of construction services etc.
Construction Services in simple terms:
The construction services involved in a project include all types or phases of a construction process such as:
These services are currently subjected to revisions as per the Notification no. 03/2022 dated 13 July 2022 that was issued by CBIC following the 47GST council meeting held on 28th-29th of June 2022.
New GST rates applicable on Real Estate & Housing
The GST rates have been increased from 12% to 18% across housing construction works.
· These rates are applicable on a single residential unit that is not a part of a residential complex.
· The same revision applies to Low-cost houses (<carpet area of 60 sq. m. per house) that is approved under
o Scheme for Affordable Housing in Partnership framed by Ministry of Housing
o Urban Poverty Alleviation Scheme by Government of India (GOI)
o Infrastructure status vide notification of GOI in Ministry of Finance or Department of Economic Affairs.
For an in-depth understanding, check the FAQs on GST for Real Estate Sector
New GST rates applicable to Construction of Roads & other modes of transport
The GST rates have been increased from 12% to 18% across transport construction projects while the rates on the secondary services have fallen from 18% to 12%.
· These rates are applicable on Railways construction works excluding
· It is also applicable to the works done for Roads, Bridges and Tunnels at the same rate.
· Secondary services such as renting of truck or goods carriage, along with fuel, for transportation of materials has dropped to 12%.
New GST rates applicable to Infrastructure Projects
The GST rates have been increased from 12% to 18% across infrastructure construction works.
· These rates are applicable to the construction services for Canal, Dam or Irrigation works.
· The works for supporting infrastructure such as Pipelines, Conduits, Water treatment and sewage treatment plants are levied the same tax rate.
· Independent structures such as Educational, Clinical, Art or Cultural establishments are also imposed the same tax rate.
· Civil structures made for use other than business, commerce or industry come under the same slab.
· The service taxes for construction works of historical monuments or archaeological sites or remains of national importance are also increased.
· In addition to the above specifics, the Industrial Intermediaries have also been imposed an increased GST rate of 18%.
New GST rates applicable to Government Projects
The GST rates have been increased from 12% to 18% across government project-based construction works following that of the earthworks from 5% to 12%.
· These rates are applicable to construction works of civil structures under
o Economically Weaker Section (EWS) houses constructed under Affordable Housing
o Houses acquired under the credit-linked subsidy scheme for EWS, LIG (Low Income Group), MIG-1 (Middle Income Group 1) and MIG-2 under
· The increased rates are also applicable to construction works for any housing scheme of the state government.
· The hike also takes effect on earthworks for government or local authorities on services done both directly and from the sub-contractor to the main contractor.
The New GST rate effect on Ongoing projects
While the new GST rates are directly applicable to new construction services commenced after, it is also applicable to the ongoing projects depending on the
· Supply completion date
· Invoice date
· Payment received date
Even when the supply completion date is before 22nd July, if the invoice is raised or payment is received on or after 22 July 2022, the new GST rates shall be applicable.
For successful application of the revisions, understand how to make amendments according to the new GST rates.
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Would you like to take a quick look at everything else going on in the construction market? Just give a quick read to the blog Construction industry—An Overview to stay updated on the trends and best practices.