One of the most complex areas of the tax levied by the Centre and the States is

works contract and sale of property. Currently, such transactions are broken into
three parts – the value of goods and materials, value of services and value of land.
The States apply VAT to the goods portion and the Centre taxes the services
portion, with no explicit tax on the transaction value of land.
In GST regime, there will not be any concept of manufacture, sale or service etc.
There will be only one concept i.e. ‘Supply’. All the supplies will be categorized as
Supply of goods or Supply of Services. Construction activities will be ‘works
contract’ which is being categorized as ‘Services’. All builders and developers in
India will be collecting and paying CGST and SGST (i.e. Central GST and State
GST. The place of supply of the service is the location of the immovable property.

Input Tax Credit:

Under the IGST Act, input tax is defined as IGST, CGST or SGST
charged on any supply of goods and/or services. In simple words, Input Tax
Credit means reducing the taxes paid on inputs from taxes to be paid on output.

Impact of GST on construction industry

1. Seamless flow of credits

In GST regime, all the above duties/taxes (except stamp duty) will get subsumed,
therefore builders should be able to avail the input tax credit of all its procurement
of goods/ services except for few restrictions. Therefore, it would reduce the tax
costs substantially in the construction industry.
2. Rate of Tax

The GST council has agreed upon the 4 rate structure for levying tax on various
goods and services i.e. 5%, 12%, 18% and 28%. GST rate for works contract is set
at 18% – which is higher than the previous tax rates that ranged from 11-18%.
Work contracts are the mix of both goods and services. Works contract includes
constructing new buildings, installing electric and electronic devices, renovating
and restoration services.

3. Multiple Registrations

Concept of centralized registration for all the projects will end and builders having
a site in multiple States would be required to obtain registration in each State from
where the construction activity/ supplies are being undertaken even though the
project is for a very small period or for a small value. Although, this scenario is in
existent in the current law for the state taxes but the same will now be done even
for the central taxes.

4. Time of Supply in GST

Currently, many builders pay taxes on receipt basis (without complying with the
point of taxation) in case of service tax i.e. tax is paid only once the monies are
received from the customers. However, in the GST regime, tax needs to be paid
immediately on earliest of completion of service, raising of invoice or receipt of
monies from customers. This could have an impact and could cause blockage of
working capital.

Work contracts is likely to benefit from GST as input tax credits would be
available for raw materials. However construction projects under progress could
feel the heat of GST if there is limited scope for renegotiation.

Comparison of taxes before and after GST implementation:

GST Advantages

1. GST is a transparent tax and also reduces number of indirect taxes.

2. GST will not be a cost to registered retailers therefore there will be no
hidden taxes and the cost of doing business will be lower.
3. Benefit people as prices will come down which in turn will help companies
as consumption will increase.
4. In the GST system, when all the taxes are integrated, it would make possible
the taxation burden to be split equitably between manufacturing and
services.
5. GST will also help to build a transparent and corruption free tax
administration.

GST Disadvantages

1. Increased costs due to software purchase

2. Being GST-compliant
3. GST will mean an increase in operational costs
4. GST is an online taxation system
5. SMEs(small and medium enterprise) will have a higher tax burden

How to pay GST?

You can pay GST through online GST portal.