Impact of GST on Construction Materials and Services
Effective as on 1st July 2017, all sectors have to pay Goods and Service Tax (GST) in India. The proposed GST is expected to do wonders by reducing the overlapping tax burden in India. In the previous article, insight on the effect of GST on real estate sector was discussed. This article throws light on the GST rate for constructing materials including sand, AAC blocks, bricks, cement, wires, paints, iron, steel and other materials.
Bifurcation of Construction Materials GST Rate
Find the table below with GST rates based on the percentage.
|River Sand||AAC Blocks||Steel||Cement||Marble and Granite||Tiles|
|Crush Sand||Fly Ash Bricks||Cement Block||Glass||CP Fittings|
|Aggregate||GI Fittings||Wire and Cable||Aluminium Windows|
|Stone||Key Locks||Paint and Varnish|
|Red Bricks||Sanitary Fittings|
|Wooden Door and Window|
The GST for building materials ranges between 5% and 28%. The Harmonized System Nomenclature (HSN) code decides the GST for various materials. Source
Comparison with Contractor Service Fees and Building Material Price – Before and After GST
Before GST, the indirect tax regime, contractor service charge covers three types of taxable actions:
- Goods supply
Goods supply falls under VAT; Services comes under the service tax. Central excise duty charges for manufacturing new products during the construction work.
According to Mr. Sanjay Garg, KPMG partner (indirect tax), the implementation of GST in India provides the long awaited generalization of the indirect tax structure. Contractor works (Work Contracts) is considered only as a service. The cost of raw materials procured will come down due to the Input Tax Credit (ITC) facility.
The cash constituent of the building construction economy will reduce due to the execution of GST in India. To avail ITC, contractors must purchase raw materials from GST-registered vendors, resulting in better tax compliance.
For Instance: Few supplies including steel will be at the lower end in cost as per the GST regime. Coal, the raw material required to make steel falls under 5% GST. Before the GST implementation, the percentage was as high as 11.5%. Source
If the contractor provides only services, will there be a tax on service fees?
This clearly states that the works contract with effect to the GST regime comes under service. The tax would be levied accordingly, and not as supplies, partial supplies, and partial services.
GST has considered the works contract as a service. No longer will any confusion arise of the supply of goods.
Before GST, different states followed different methods for VAT. The complex Service tax was 60% abatement on new works and 30% reduction on repair contracts.
GST offers a great relief and solves those confusions with a simple calculation. GST has not described reduction and composition.
Under GST, the work contract is considered as a service, and hence, the composition scheme is not available. Contractorâ€™s compliances and costs will increase as they will follow the standard taxation system. Source
GST confirmation on works contract as a service has brought clarity. But the lack of details in the areas of input tax credit (ITC) and composition schemes will lead to disputes.
Magicrete Building Solutions, based in Surat, is a leading manufacturer, and supplier of AAC blocks. Being a pioneer in green building materials, with two manufacturing units in Gujarat and Haryana, it has crossed a turnover of Rupees 5 billion. A trusted partner in the construction industry since 2008, it is all set to face the GST and still make raw materials affordable to its clients.