Construction services play a crucial role in India’s economic framework, representing a substantial sector that makes an approximate 9% contribution to the nation’s GDP. GST, an all-encompassing indirect tax system, replaced earlier taxes, such as VAT, excise duty, and service tax previously levied on construction services.
GST levies taxes on the value added at each stage of the supply chain, effectively preventing the compounding of taxes and ensuring a consistent tax structure across different states. To streamline this process, the GST authorities employ a Service Accounting Code (SAC) classification system, assigning unique codes to various types of services. These SAC codes serve as a crucial tool for determining the applicable GST rate and facilitating the filing of returns for service providers.
In this blog, we will delve into the specific GST rates and SAC codes applicable to different categories of construction services in India. Furthermore, we will provide insights into how to calculate GST for construction services, shedding light on the relevant conditions and exceptions. By the end of this blog, readers will possess a comprehensive understanding of the GST implications for construction services in India, empowering them to navigate the intricate web of GST rules and regulations effectively.
What is a SAC code?
SAC stands for “Services Accounting Code.” It is a unique code system used to classify services under the Goods and Services Tax (GST) regime in India. These numeric codes are used to categorise various services for tax purposes.
The SAC code is similar to the Harmonized System of Nomenclature (HSN) code, which is used to classify goods. While HSN codes are used for goods, SAC codes are specifically designed for services, helping identify and tax different types of services. Each SAC code corresponds to a particular kind of service, making it easier for businesses and tax authorities to classify and tax services correctly.
When a business provides a service, it must use the appropriate SAC code when filing GST returns to ensure that the correct tax rate is applied to that service. This system streamlines the process of identifying and taxing services under the GST regime in India.
SAC code for Construction Services of Buildings
The Service Accounting Code (SAC) for Construction Services of Buildings under the Goods and Services Tax (GST) system is SAC code 9954. This code applies explicitly to services associated with constructing various types of buildings, encompassing both residential and commercial structures. When filing GST returns or conducting transactions related to construction services of buildings, you would use this SAC code to classify the service correctly.
GST Rate for services under SAC code 9954
Nil GST Rate:
Beneficiary-Led Individual House Construction: Services related to construction, erection, commissioning, installation, repair, maintenance, renovation, or alteration of civil structures or other original works for Pradhan Mantri Awas Yojana.
Single Residential Unit: Pure labour contracts for the construction, installation erection, or commissioning, of original works for a single residential unit, excluding residential complexes.
5% GST Rate:
- Composite Supply of Works Contract: Sub-contractor services to the main contractor for specified services to government entities.
- Composite Supply of Works Contract: Sub-contractor services to the main contractor for specified services to government entities (5% rate).
5% GST Rate (No ITC):
Housekeeping Services: Includes services like plumbing, carpentry, etc., provided through an electronic commerce operator when the provider is not liable for GST registration.
12% GST Rate:
Composite Supply of Works Contract: Predominantly for non-commercial, non-industrial, and non-business use, such as educational, clinical, or art and cultural establishments or residential complexes meant for self-use.
Composite Supply of Works Contract: Predominantly earthwork, constituting more than 75% of the works contract, provided to government entities.
Composite Supply of Works Contract: Construction, erection, commissioning, or installation of original works related to historical monuments, archaeological sites, irrigation, and more.
Composite Supply of Works Contract: Construction, erection, commissioning, installation, or alteration of road transportation structures, civil works under government schemes, pollution control plants, and structures for funerals, burial, or cremation.
Composite Supply of Works Contract: Construction, erection, commissioning, installation, or alteration of railway works, single residential units (excluding residential complexes), low-cost houses, and more.
Construction of Economically Weaker Section (EWS) Houses: Civil structures or other original works about EWS houses under government schemes.
Construction of Homes via the Credit Linked Subsidy Scheme: Civil structures or other unique projects related to residences built or obtained through the Credit Linked Subsidy Scheme.
Building for Mid-Day Meals: A building owned by an entity registered under section 12AA of the Income Tax Act, used for providing centralised cooking or distribution for mid-day meals under government-sponsored schemes.
Low-Cost Houses with Infrastructure Status: Low-cost houses in affordable housing projects with infrastructure status.
18% GST Rate:
Other Construction Services: Generic construction services.
Construction of Complex or Building: Constructing a complex, civil structure, building, or any portion thereof with the intention of selling, except when the entire payment is received following the issuance of the completion certificate or after its initial occupation, whichever occurs earlier. (The land value is assessed as one-third of the total sum charged for such provisions).
Composite Supply of Works Contract, as per the description in clause 119 of section 2 of the CGST Act, 2017.
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In the construction sector, navigating GST rates and Service Accounting Codes (SAC) is vital. It ensures compliance and supports growth.
With various rates like “Nil,” 18%, 12%, and 5% for different aspects of construction staying updated is vital.
Understanding these codes isn’t just about rules; it’s a gateway to efficient compliance and supporting government initiatives. Explore these codes and contribute to the growth of India’s construction sector!
Frequently Asked Question(FAQs)
1. Can GST rates for construction services change over time?
Yes, GST rates can change as per government policy revisions
2. What is the significance of staying compliant with GST rates and SAC codes in construction?
Staying compliant with GST rates and SAC codes is neccessary to avoid legal issues and penalties. It also ensures that you’re contributing to government initiatives and supporting the growth of the construction sector while fostering transparency and accountability in your business operations.