GST ON CONSTRUCTION SERVICES IN INDIA: LATEST RATES AND HSN CODE

Since the rollout of the Goods and Services Tax (GST), the tax structure for the construction sector has undergone substantial restructuring. Previously, construction activities attracted multiple taxes such as VAT, excise duty, and service tax. With GST in place, these fragmented levies have been consolidated, resulting in a more uniform and transparent framework. However, despite this simplification, the practical application of GST on construction services continues to raise questions for builders, contractors, and homebuyers.

This article provides a detailed understanding of how GST applies to construction activities, including GST rate on the construction of buildings, GST on real estate projects, and GST on the construction of residential property. It also highlights the relevant HSN code for building construction services and clarifies the GST rate on under-construction property, along with the key GST rules for the real estate sector.

In this evolving tax landscape, platforms like TMWala can assist businesses in keeping records organized, managing GST-compliant invoicing, and staying aligned with regulatory updates.

APPLICABILITY OF GST ON CONSTRUCTION ACTIVITIES

GST applies to most construction-related transactions across India, whether in the private, commercial, or residential domains. Any property that is still under construction and intended for sale is treated as a supply of service, and therefore, GST becomes applicable. Completed properties, on the other hand, do not attract GST if the entire consideration is paid after the completion certificate is issued.

As defined under Paragraph 5(b) of Schedule II of the CGST Act, the construction of a building, complex, or civil structure intended for sale constitutes a supply of services. However, once full payment is received post-completion, such transactions fall outside the scope of GST.

While GST generally covers underconstruction projects, several exemptions and concessions continue to apply within the sector.

KEY EXEMPTIONS AND CONCESSIONS UNDER GST

Certain construction activities enjoy reduced rates or complete exemption:

1. Affordable Housing Projects: Construction of apartments within approved affordable housing projects is taxed at a concessional rate of 1%. These units must fall within 60 square meters of carpet area in metropolitan cities or 90 square meters in non-metro locations, with a value not exceeding ₹45 lakh.
2. Property Resale and Sale of Completed Units: GST is not levied on transactions involving the resale of property, the sale of completed apartments, or the transfer of land.
3. Pure Labour Contracts Under Housing Schemes: Labor-only construction services offered under government schemes like the Pradhan Mantri Awas Yojana (PMAY) are fully exempt.
4. LabourOnly Services for a Single Residential Unit: Pure labour construction for a single house or part of a residential complex is also exempt from GST.

Additionally, transporters must issue E-Way Bills when delivering construction materials such as cement or steel if the consignment value exceeds ₹50,000. Businesses involved in supplying construction services must raise GST-compliant invoices in accordance with registration requirements.

For managing such documentation, TMWala can streamline invoice generation and help contractors maintain accurate GST records, reducing compliance errors.

GST RATE AND HSN CODE FOR BUILDING CONSTRUCTION SERVICES

Different types of construction activities attract distinct GST rates. Most construction-related services fall under HSN Code 9954, which is the primary HSN code for building construction services.

Below is a summarized structure of prevailing GST rates:

*Rates are applied after deducting one-third of the value of the land.

Certain GST rates were revised from 22 September 2025. Read this for more information: Press Release: Press Information Bureau

These rates play a vital role in determining the GST rate on the construction of buildings and the applicable GST rate on under-construction property across different project categories.

GST ON CONSTRUCTION MATERIALS

The GST rate for construction materials varies significantly depending on the category and nature of the product. Below are some commonly used materials and their respective GST charges:

• Natural sand: 5%
• Cement: 28%
• Portland cement and similar hydraulic cements: 18%
• Bricks: 5% to 28% depending on type
• Granite and marble (blocks): 12%, finished forms: 28%
• Steel and iron: 18%
• Tiles: 5% to 28%
• Coal: 5%
• Paints, varnishes, and wallpapers: 28%
• Bathroom fittings (pipes, tubes, etc.): 18% to 28%

Recent revisions have reduced certain rates, such as sand-lime bricks and Portland cement, effective as of September 22, 2025.

INPUT TAX CREDIT (ITC) ON GST PAID DURING CONSTRUCTION

Section 17(5)(c) and 17(5)(d) of the CGST Act restrict ITC on certain construction expenses. These restrictions generally apply when:

• Construction is undertaken for creating immovable property (other than plant and machinery).
• Renovation or repair costs of immovable property are incurred.

These limitations largely affect businesses constructing property for self-use, while builders, contractors, and promoters engaged in taxable supplies can claim ITC.

A significant development came through the Supreme Court ruling dated 3 October 2024. The Court clarified that entities constructing buildings for commercial leasing or rental services may claim ITC because such buildings can fall under the “plant” exception to Section 17(5)(d). This ruling has substantial implications for developers engaged in GST on real estate projects and commercial construction.

CONCLUSION

The GST regime has introduced uniformity and clarity in the taxation of construction activities, but its application continues to vary based on the type of project, stage of construction, and nature of the contract. Understanding the nuances of GST on construction services, along with the appropriate GST rules for the real estate sector, helps businesses, developers, and buyers make informed decisions.

Whether it concerns GST on the construction of residential property, the correct HSN code for building construction services, or the applicable GST rate on under-construction property, staying updated with current regulations ensures compliance and more efficient project planning.

FAQs

1. Is GST applicable to an under-construction property?
   Yes, GST applies to all properties that are still under construction and intended for sale.
2. Do completed or ready-to-move properties attract GST?
   No, GST is not applicable if the entire payment is made after the completion certificate is issued.
3. What is the GST rate on the construction of affordable housing?
   The GST rate is 1% for approved affordable housing projects.
4. What is the HSN code for building construction services?
   Most construction services fall under HSN Code 9954.
5. What is the GST rate on the construction of a building for non-affordable housing?
   The GST rate is 5% after deducting one-third value towards land.
6. Are pure labour construction contracts taxable under GST?
   Pure labour services under PMAY and for a single residential unit are exempt; otherwise, the rate is 18%.
7. Is GST applicable to the resale of property?
   No, resale of property does not attract GST.
8. What are the GST rates on construction materials like cement and steel?
   Cement is taxed at 28%, while steel and iron attract 18%.
9. Can builders claim ITC on construction expenses?
   Yes, builders and promoters can claim ITC unless restricted under Section 17(5).
10. How can TMWala help with GST compliance in construction?
    TMWala helps with GST invoicing, documentation, and compliance tracking for construction businesses.