GST rates, notifications and thresholds change. This is general guidance for construction professionals — confirm the specific rate, RCM applicability and e-invoicing threshold for your contract with your tax advisor before you bill.
Before GST, a works contract was a knot: part goods (VAT), part service (service tax). GST cut the knot. A works contract relating to immovable property is now, by law, a single supply of service — which simplifies the tax treatment but makes a few things (like input-tax credit) subtle.
Why a works contract is a 'service'
Schedule II of the CGST Act specifically classifies a works contract (as defined in Section 2(119) — construction, erection, fitting-out, repair, alteration etc. of immovable property involving transfer of property in goods) as a supply of service. So the whole contract value is taxed as a service; you don't split it into goods and services.
Rates
The general rate for construction works contracts is 18%. Certain categories — for example some government, affordable-housing and specified infrastructure works — have historically carried concessional rates (12% or 5%). Several concessional rates for works supplied to government were withdrawn in recent revisions, pushing many such contracts to 18%. Because this area has moved repeatedly, treat the rate as contract-specific and confirm the current notification.
Place and time of supply
- Place of supply — for a works contract on immovable property, it is the location of that property. This decides whether CGST+SGST or IGST applies.
- Time of supply — GST is due at the earlier of the invoice/payment for the supply. For running bills, each certified RA bill generally triggers the GST liability for that period.
Input-tax credit (ITC) and blocked credits
A contractor supplying a works-contract service can generally claim ITC on the inputs, input services and capital goods used to provide it. But Section 17(5) blocks credit in specific situations. The most important for construction:
- ITC on works-contract services for construction of immovable property is blocked when received by a person constructing on their own account (i.e. not a further supply of works contract).
- A sub-contractor supplying a works-contract service to a main contractor who is himself supplying a works-contract service is generally eligible — the credit chain flows.
- Standard blocks still apply (e.g. certain motor vehicles, personal consumption).
If you are building to on-sell the works-contract service (contractor → client, sub-contractor → contractor), the credit chain generally flows. If you are building an immovable asset for your own use, ITC on that construction is typically blocked.
Reverse charge (RCM)
Most works contracts are forward-charge (the contractor charges GST). RCM applies in specific notified cases — for example certain supplies by a goods-transport agency, or specified services to a body corporate. Keep an eye on notifications that shift particular construction-related services to RCM.
GST TDS on government contracts
Where the recipient is a government department, local authority or notified entity, Section 51 requires deduction of GST TDS at 2% (1% CGST + 1% SGST, or 2% IGST) on the taxable value where the contract value exceeds the threshold. This is separate from income-tax TDS and is credited to your electronic cash ledger.
E-invoicing and the IRN
Once your aggregate turnover crosses the notified e-invoicing threshold, B2B tax invoices (including RA-bill tax invoices) must be reported to the Invoice Registration Portal (IRP) to obtain an Invoice Reference Number (IRN) and signed QR code before they're valid. Build this into your billing workflow rather than bolting it on at month-end.
InCore's billing module raises the RA-bill tax invoice with GST computed on the certified value, generates the e-invoice IRN where applicable, and posts GST/TDS deductions on the bill — so the tax position is correct at the point the bill is certified, not reconstructed later.