In July 2017, GST was introduced, and it made the taxation system for construction materials simple. Before GST, the construction sector had to deal with multiple taxes like excise duty, Octroi, VAT, and customs duty. Now, all these indirect taxes have been removed.
GST on construction is certainly a matter one must remember to understand pretty closely, as the number of Indians working in construction in this country is estimated to be around thirty million. The construction sector generates assets worth Rs. 200 billion annually. Activities in this field are largely governed by the supply and use of works contracts, which play a key role in managing construction-related tasks.
While construction services are usually charged GST of about 18%, certain exceptions exist. Therefore, read on to learn everything about GST on construction.
Latest Update: GST On Construction
On July 28, the Gujarat High Court gave a major relief to homebuyers by clarifying that GST on construction applies only to construction costs, not the value of the land. This means GST is not charged on the land’s actual value or the undivided share in properties like villas, flats, or commercial plots. The tax is applied only to construction-related expenses. This decision has eased the burden on homebuyers, ensuring they do not pay GST on the land value of their property.
GST Rate on Construction Services in 2025 with HSN Code
Below is a table summarising the GST rates on construction services:
| Types of Construction Services | GST Rate | HSN Code |
| Construction of residential complexes | 12% (after 1/3rd land deduction) | 9954 |
| Works contract for government, local authority, or governmental authority | 12% | 9954 |
| Affordable housing projects (w.e.f April 1, 2019) | 1% without ITC | 9954 |
| Construction of Commercial complexes | 18% | 9954 |
| Completion and finishing services (e.g., painting, tiling) | 18% | 9954 |
| Composite supply of works contract (Value of goods is more than 25%) | 18% | 9954 |
| Composite supply of works contract (Value of goods is less than 25%) | 12% | 9954 |
| Construction services for highways, roads, railways, bridges, airport runways, and tunnels. | 18% | 995421 |
| Masonry Services | 18% | 995456 |
Note: A certain construction service GST is computed after reducing a third of the total value towards the land component.
GST Applicable on Construction Services and Materials
Construction projects require a variety of materials, each subject to different GST rates. Here’s a breakdown of some commonly used materials and their applicable GST rates:
- Cement: All types of cement, such as slag, Portland, or hydraulic, have a uniform GST rate of 12%.
- Sand: Natural sand or sand containing metal has a reduced GST rate of 5%. However, specialised sands like tar sands or oil shales are taxed at 18%.
- Pebbles, Crushed Stones, and Gravel: These materials are charged 5% GST when used for residential houses or building construction.
- Bricks: Building bricks, including fly ash or siliceous bricks, carry a 5% GST. However, since April 1, 2022, the GST for these materials has increased to 12%. Tiles, ceramics, and refractory bricks attract 18% GST, while under-construction properties using cement, glass blocks, or artificial bricks can face a GST rate of up to 28%.
- Marble and Granite: For blocks, the GST rate is 12%. For non-block materials, the rate increases to 28%.
- Building Stones: Stones like sandstone or basalt used in slabs and blocks are taxed at 5%.
- Coal: Coal carries a fixed GST rate of 5%.
- Steel and Iron: Steel and iron products, including rolls, wires, and blocks, are taxed at 18%.
- Mica: 12% tax for GST.
- Tiles: Tiles of different kinds have different GST rates; for example, for bamboo flooring & roofing/ earthen flooring tiles, it is 18% & 5%, respectively. Then again, you can add 28% of GST to your cost for cement tiles, plastic flooring, artificial flooring tiles, concrete tiles, etc.
- Interiors: Wallpapers, paint, enamels, varnish, electrical appliances, parts, etc., are all levied 28% on the buyer. Apart from that, all the common bathroom necessities such as sinks, urinals, flushing cisterns, bidets, baths, etc., are also put under this GST rate. The only things that are different are pipe and tube fittings like elbows or sleeves, and these are composed of iron, steel, plastic material, copper, nickel, and aluminium, which have an 18% GST rate.
GST Rates for Construction Services 2024
Below are the GST rates on categories for all construction services corresponding to the year 2024:
Labour and Contractor Services
Labour and contractor services for construction activities are subject to a 12% Goods and Services Tax (GST). These costs are essential for executing any project. Contractors and service providers can use the input tax credit (ITC). This means the GST payable on inputs can be adjusted against the GST collected on outputs.
Architectural and Design Services
Architectural and design services carry a GST of 18%.
GST Rates on Real Estate Projects 2024
GST in India on real estate projects varies according to the kind of project. Affordable housing projects attract a lower rate of 1%, while all the other projects attract a tax of 5%. These under-construction properties are supposed to be sold and classified as a supply of service to which GST applies, although there are certain exemptions and concessions under the GST law.
GST Rate on Goods Transportation
5% is the tax levied on the movement of goods, i.e., construction materials, for effective supply chain management.
Input Tax Credit in Construction
Except for plants and machinery, Input Tax Credit can’t be claimed for services used in constructing immovable property. An individual eligible for ITC on works contracts should be in the same line of business and should also use such services towards ongoing works contracts. Self-constructed buildings, conversely, do not qualify for ITCs on goods and services related to constructing immovable property (not including plant or machinery). This applies even if it is for business use.
GST is applicable even for construction activities in respect of residential, commercial, or infrastructural projects. It’s extremely important to assess the GST implications for real estate developers, contractors, and end users:
Real Estate Developers
GST applies to under-construction apartments sold by developers. The development services component of the property’s value, not the entire amount, incurs GST, and the developers may make an ITC claim on the GST paid for construction goods and services. The rate of tax will depend on the type of property.
Homebuyers
Every purchase of a property under construction attracts GST charges. The corresponding GST standard rate for residential properties is 5%, while for affordable housing, it is 1% (maximum carpet area of 60 sq. meters in metros & 90 sq. meters in non-metros). Homebuyers can claim ITC through the builder and reduce the total cost.
Contractors
Contractors are subject to GST provisions regarding construction and all other related services. Therefore, the services they offer attract GST, and they can claim input tax credits for taxes incurred on construction goods and services acquired for projects. The general rate of GST on construction services is 18%.
GST Rates and Categories in Construction
In construction works, the GST rates decide the tax consequences for builders and homebuyers. Affordable and unaffordable housing categories determine real estate projects, giving birth to the corresponding rates, which affect the industry.
Affordable Housing
Affordable housing schemes for affordable housing projects are, above all, to provide houses for individuals from economically weaker sections of society. GST rates for affordable housing schemes are much lower than non-affordable housing projects. The prevailing GST rate under affordable housing is one per cent without Input Tax Credit (ITC).
Non-Affordable Housing
GST rates are significantly higher for housing projects that do not qualify as affordable. For residential properties outside the affordable category, the GST rate is up to 5%. This applies to the sale of residential units, apartments, and houses that do not fall under the affordable housing criteria.
On the other hand, commercial properties such as offices, shops, and other commercial spaces attract a GST rate of 18%. These properties also come with the benefit of claiming an Input Tax Credit (ITC).
Input Tax Credit (ITC) Consideration
The introduction of ITC in construction has impacted the cost structure of real estate projects. Developers can use ITC to offset their GST liability on the final product by claiming credits for the GST paid on inputs like materials and services. However, the eligibility and application of ITC depend on factors such as the type of project, the nature of expenses, and any regulatory changes that may arise.
Benefits of Appropriate GST Classification
Real estate projects based on affordability are classified into different categories of implications other than the tax rates. Developers, however, are supposed to assess thoroughly the criterions for affordable housing eligibility and compliance. Proper classifications define the applicable GST rates and expose the developers to other benefits, exemptions, or incentives associated with affordable housing schemes.
Things You Must Know About GST Exemptions and Concessions
- Exemptions
Certain transactions are exempt from GST. Property resale, the sale or purchase of completed residential properties, and land transactions are not subject to GST. Additionally, construction services or labour contracts under the Pradhan Mantri Awas Yojana (PMAY) are also GST-free.
- Pure Labour Contracts
Construction work provided through pure labour contracts for a single residential unit or within a residential complex does not attract GST.
- e-Way Bills
Materials like cement and steel can be transported using an e-Way bill if the consignment value exceeds Rs. 50,000.
Construction service providers must ensure they issue GST-compliant invoices for all their services.
Conclusion
GST impacts on the construction business in India are many. They include project costs, compliance costs, and cash flow management. Transparency and standard tax rates are great, but still, there are many issues with high rates on materials and compliance. The stakeholders must keep abreast of all the GST rules so as to manage the issues faced and take advantage of the opportunities for growth in this changing sector.