Construction is a major industry in India, contributing significantly to the country's GDP. However, when it comes to taxation, things can get tricky. One such confusion arises with respect to GST applicability on construction-related activities. While most services related to construction are subject to GST, some of them are outside its purview. In this article, we will take a closer look at the construction-related activities that fall outside the purview of GST. Firstly, let us understand the basics of GST. GST or Goods and Services Tax is a comprehensive indirect tax levied on the supply of goods and services. It has replaced multiple indirect taxes such as excise duty, service tax, and VAT, thereby simplifying the taxation system. GST is levied at each stage of supply chain, and the burden is eventually borne by the final consumer. Now, coming back to construction-related activities, we can broadly classify them into three categories- construction of buildings, works contract, and other related services.
Let us examine each one of them in detail to understand their GST implications.
Construction of buildings includes the construction of residential and commercial buildings such as apartments, offices, shops, malls, etc. The good news is that the construction of buildings is outside the purview of GST. This means that there is no GST applicable on the sale of completed buildings. However, if the builder sells the building before the completion certificate is obtained, then GST is applicable. The applicable rate of GST is 18% on the value of the construction service.
Works contract refers to a contract where a contractor undertakes to carry out both goods and services for a consideration. This includes construction contracts, turnkey contracts, composite contracts, etc. The GST applicability on works contract depends on the nature of the contract. If the contract is for the construction of an immovable property, then it is considered a works contract for the purpose of GST. In such cases, the GST applicable is 12% on the value of the contract. However, if the contract is for the supply of goods or services, then the GST rate applicable is 18%.
Apart from construction and works contract, there are other services related to construction such as architectural services, survey and exploration of minerals, testing and analysis of construction material, etc. These services are also outside the purview of GST. To summarize, construction-related activities that are outside the purview of GST include the construction of buildings, architectural services, survey and exploration of minerals, testing and analysis of construction material, etc. However, if the builder sells the building before the completion certificate is obtained, GST is applicable at the rate of 18%. Similarly, if the works contract is for the construction of an immovable property, then the GST rate applicable is 12%. In conclusion, understanding the GST implications on construction-related activities is important to avoid any confusion and ensure compliance.
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