GST and Construction Service

     The GST is chargeable on supply of Goods and/or Services in India. As per provisions of GST Law, construction of complex, building, a civil structure etc. is treated as supply of service and therefore a person engaged in Construction activity should familiarise himself with applicable provisions. However, there is an exception and the cases, where entire consideration is received after completion certificate, are not treated as supply of service.

    Accordingly, the developers/builders are required to take GST Registration and pay the tax. Below are given some salient points, which may please be considered before undertaking any construction activity

 

FAQs by RamaniLegal

How does the GST apply to Construction Industry?

Whether your construction activity can be treated as Construction Service?

What is rate of GST on construction service?

Whether you are required to take GST Registration?

How to Register yourself for GST?

What is Input Tax Credit and am I eligible to it?

What is Tax Invoice and legal provisions for it?

Who is responsible for collecting and paying the GST?

 

 

How does the GST apply to Construction Industry?

    Before you commence your construction, it is important to familiarise yourself with the GST provisions that are applicable to the Construction Industry. As per GST Laws the Construction Service covers construction of a Complex, building, civil structure etc. including additions, alterations, replacements etc. This activity has been defined as supply of service and chargeable to GST.

      Generally, if you are a GST registrant and you make a taxable supply of construction service, you have to charge the GST to the purchaser and pay it to Govt. The liability to pay GST is on the developer/builder, therefore, as a general rule, you would be required to pay the GST on sale of taxable construction service, irrespective of the fact whether you have collected it from the buyer or not. For more information, please contact us at helpdesk@ramanilegal.com.

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Whether your construction activity can be treated as Construction Service and is it taxable?

     If you provide Construction service in any way i.e. by way of sale, transfer, barter, exchange, licence, rental, lease etc., you are supplying Construction service. The construction of a complex, building, civil structure etc. including additions, alterations, replacements etc. are treated as supply of construction service. The Construction service is further divided into various sub-categories and for ascertaining the Rate of Tax and applicability of other provisions/exemptions it is utmost necessary to ascertain the correct classification/sub-classification of Construction service. For example, the effective rate of tax for construction service for a regular housing complex is different than a housing complex under some schemes or works contract.

      

Following are some of the factors to consider when determining your tax liability: -

1. What does the agreement state that you are providing? If the agreement is a contract to build a house on land owned by you or your customers, you are supplying a taxable construction service.

2. The ownership of land, on which the complex/building is being constructed, will have to be considered as it will have an impact on tax liability.

3. Whether it is a normal project/complex/building or a project under some Govt. scheme?

4. Whether the cost of project have been worked out properly after taking into consideration the Anti-Profiteering provisions?

5. Whether the transaction also involves transfer of land or undivided share of land, alongwith the constructed complex/building? etc.

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What is rate of GST on construction service?

The general rate of GST on Construction Service is 18% of the invoice value, however, in cases where the sale of flat/building involves transfer of land or undivided share of land, an abatement of 1/3^rd of the value is available. It translates into an effective tax liability of 12% of the value.

Further, construction of a complex/project/building for Central or State Govts. or for any scheme like low cost houses under ‘Pradhan Mantri Awas Yojana, housing scheme of a State Govt. etc. are chargeable to tax at a lower rate.

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Whether you are required to take GST Registration?

     

You must register for GST if:

·         the aggregate turnover of your supplies exceeds Rs. 20,00,000/-;

·         for special category states the limit for turnover is Rs. 10,00,000/-

        As a supplier of services, it's your responsibility to register for GST, as and when your turnover exceeds the threshold limit or is likely to exceed it.

The Aggregate turnover, in GST, means sum total of your all supplies (Sales) excluding GST.

 Example

       If you have received an amount of Rs. 11 lakhs for proposed sale of a under construction flat and also a rent amount of Rs. 10 lakhs for renting your Commercial Property, then your aggregate turnover shall be Rs. 21 lakhs and you will have to apply for Registration.
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Goods and services tax, popularly known as GST, is a tax on supply of Goods and Services and chargeable on most of the goods and services sold or consumed in India. GST applies to all businesses, whose Turnover is beyond a threshold limit. Therefore, when your Turnover reaches the threshold limit then you will have to apply for Registration, within 30 days from that date.

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Do I need to register for GST?

You need to take GST Registration if:

·         the aggregate turnover of your supplies exceeds Rs. 20,00,000/-;

·         for special category states the limit for turnover is Rs. 10,00,000/-

        As a supplier of Construction service, it's your responsibility to register for GST, as and when your turnover exceeds the threshold limit or is likely to exceed it.

The Aggregate turnover, in GST, means sum total of your all supplies (Sales) excluding GST.

 Example

       If you have received an amount of Rs. 11 lakhs for proposed sale of a under construction flat and also a rent amount of Rs. 10 lakhs for renting your Commercial Property, then your aggregate turnover shall be Rs. 21 lakhs and you will have to apply for Registration.
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When you exceed the threshold limit of Rs.20,00,000/- (or Rs. 10, 00, 000/- for special category states), You will have to register for GST within 30 days from the date when you exceeded the limit.

     

We suggest you to check your aggregate turnover each month to ensure that you're within the threshold limit and not likely to cross it. This will help you to take timely action for applying for the GST Registration and ensure proper legal compliance.

   If your GST turnover is below the threshold limit, registering for GST is optional.

    In case you choose to register voluntarily i.e. even if your GST turnover is below the threshold limit, then regardless of your turnover, you must charge GST in your invoice and file the Returns. In such a case Input Tax Credit will be available to you.
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How do I register for GST?

1.   You need a PAN, issued by the Income Tax Department, to register for GST. Your GST Identification No. (GSTIN) will be based on your PAN.

2.   Go to the website www.gst.gov.in, click on Services - Registration - New Registration. You will be able to register for GST after filling your details and uploading the desired documents.

3.   If you are unable to register online, you may contact us.

What is Input Tax Credit (ITC)?

Input Tax Credit (ITC) is the credit of amount of GST, paid by you on your purchases.

If you are registered for GST, then you can claim the ITC that has been paid by you on the goods and/or services purchased by you for use in your business.

Example

You have undertaken construction of a Building/Complex at BKC. For completing this project, you will require various services like Architects, Works Contracts, Security, Goods Transport, Advertising & Marketing etc.  and goods like Cement, Steel, Tiles, Bricks, Bathroom/Sanitary Fittings etc.. Whatever amount of GST is paid by you, on these purchases, shall be available to you as ITC, which can be used for discharging your GST liability on sale of Flats/Blocks. 

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Whether ITC will be available for all goods and services?

    Yes, ITC is available for all goods and services used in the construction industry. However, there are some exceptions like- Rent-a-Cab, Club Membership, Motor Cars, Food & Beverages, items for personal consumption etc., the ITC of GST paid on such goods/services is not available.

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When you can claim Input Tax Credit

You must be registered for GST to claim Input Tax Credits.

You can claim ITC for any GST paid on goods and/or services, purchased by you for use in the Construction service.

You can claim ITC on fulfilment of following conditions:

·         You use/intend to use your purchase solely or partly for providing construction service.

·         You are going to pay GST on construction service.

·         You should be in possession of tax paying document issued by supplier;

·         You have received the goods and / or services;

·         The tax charged on such supply has actually been paid to the government;

·         You have furnished the return

·         There is time limit for claiming ITC.

ITC and purchases for private/non-business use

     If you purchase goods or services for construction service as well as private use, you can claim ITC only for the part of the purchases used for your construction business.

     You can claim full input tax credit on your purchases that you use/intend to use in the construction service, however, if the same are only partly used in the taxable construction service then you have to workout the proportionate amount of ITC, taken on inputs and input services used for non-business purposes or in a non-taxable supply of construction service, and pay it back.

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Input Tax Credit and depreciation under Income Tax Act

 1. The ITC of GST paid on purchase of Goods is divided into TWO Categories-

     A. ITC on Inputs and

     B. ITC on Capital Goods.

2. For ITC purposes the Capital Goods are those goods, the value of which is capitalized in your books of accounts.

3. If you avail the ITC on Capital Goods then you should not claim depreciation, under the provisions of Income Tax Act, 1961, on the amount of GST paid at the time of purchase of these capital goods.

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What is Tax Invoice

1.   Tax Invoice is a document which a Registered Developer/Builder is required to issue for all sales by him;

2.   The Tax Invoice must contain the prescribed details like Name & address, GSTIN, Description, HSN Code, Value of service, Tax rate & amount etc.;

3.   In case of receipt of advance for supply of any service, a Receipt Voucher should be issued. Besides, if required, you will have to issue credit notes/debit notes/refund voucher/payment voucher;

4.   All these documents must contain the prescribed details.

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Do I need to issue a Tax Invoice

1.   Yes, every Registered Person is required to issue a Tax Invoice. A Tax Invoice is different from other regular Invoices.

2.   Tax Invoice is to be prepared in Duplicate.

3.   In case of receipt of advance payment in respect of any supply of construction service, issue a Receipt Voucher containing prescribed details.

What is the time for issuing Tax Invoice

1.   Tax Invoice can be issued before or after the supply of service, but not later than 30 days from the date of supply of service.

2.   In case of receipt of payment, the Tax Invoice has to be issued when the payment is received.

3.   However, in case of Agreements specifying due dates for payment or linking it to completion of a stage in construction, the Tax Invoice has to be issued on such due dates or the date of completion of that stage.

 

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Who is responsible for collecting and paying the GST?

       The GST is chargeable on the sale/proposed sale of under construction property and therefore any person engaged in construction of a complex, building or civil structure is required to charge GST in his Invoices and pay it to Govt. The liability to pay GST is solely on Developers/Builders and therefore they have to charge the GST from the buyers, payable on the taxable sale of constructed property, and pay it to Govt.. Those developers/builders, who have obtained GST registration, will be able to claim input tax credit (ITC) of the GST paid on the goods and services purchased by them for use in the construction.