GST Rate & HSN Code for Building Contractors and Developers in India

Navigating the complexities of GST can be challenging, especially for those in the construction industry. Choosing the wrong building contractors HSN code or applying an incorrect GST rate can lead to compliance issues and financial penalties. This comprehensive guide will demystify the correct HSN code and the applicable GST rates for the construction industry in India. Understanding these details is crucial for accurate invoicing, correct tax payment, and seamless GST compliance for building contractors in India. Whether you’re a seasoned developer or a small-scale contractor, this article will provide the clarity you need to manage your tax obligations effectively.

Understanding GST for the Construction Sector

Before diving into specific codes and rates, it’s essential to grasp the fundamental concepts of how the Goods and Services Tax (GST) applies to the construction sector. The entire tax structure for contractors and developers is built upon the concept of a ‘works contract’. This classification determines how services are taxed, how credits are claimed, and how invoices are raised. It is the cornerstone of all building contractors tax information India.

What is a ‘Works Contract’ under GST?

Under the GST regime, a “works contract” is specifically defined in Section 2(119) of the CGST Act, 2017. It refers to a contract that involves both the supply of goods (like cement, steel, sand) and the supply of services (like labour, architectural design, engineering) for the construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of any immovable property. Essentially, any contract where goods are consumed in the process of providing a service to create or modify an immovable structure is a works contract. For a complete overview, see our guide on GST on Construction Contracts and Civil Works – Complete Guide 2025.

Crucially, the GST law clarifies that a works contract is treated entirely as a “supply of service.” This is a significant departure from the previous tax system (VAT and Service Tax), where both goods and services were taxed separately, leading to complexities and double taxation. By classifying it as a single service, GST simplifies compliance for building contractor services GST India. This means that when a contractor issues an invoice, they charge a single GST rate on the total contract value, rather than separating the value of goods and services.

Key GST Components: CGST, SGST, and IGST

For anyone new to the GST system, understanding its components is vital. GST is a destination-based tax, and its application depends on whether the transaction is within a state (intra-state) or between states (inter-state).

CGST (Central GST): This is the tax collected by the Central Government on an intra-state supply of goods or services.
SGST (State GST): This is the tax collected by the State Government where the supply is made, also on an intra-state transaction.
IGST (Integrated GST): This tax is collected by the Central Government for any inter-state supply of goods or services.

Example for a Contractor: If a contractor in Maharashtra provides construction services to a client also located in Maharashtra for ₹10,00,000 and the applicable GST rate is 18%, the invoice will show ₹90,000 as CGST (9%) and ₹90,000 as SGST (9%). However, if the same contractor provides services to a client in Gujarat, the invoice will show ₹1,80,000 as IGST (18%).

Finding the Correct Building Contractors HSN Code

One of the most critical aspects of GST compliance is using the correct classification code for your services. This code, known as the HSN or SAC code, dictates the tax rate and ensures uniformity in reporting across the country.

What is an HSN Code and Why is it Critical?

HSN stands for Harmonized System of Nomenclature. It is an internationally recognized system for classifying goods. For services, a similar system called SAC (Service Accounting Code) is used. In common parlance and on the GST portal, both are often referred to as HSN codes.

The HSN/SAC code is critical for several reasons:

Determines GST Rate: The code is directly linked to the applicable GST rate. Using the wrong code can lead to charging the incorrect tax amount.
Uniform Classification: It provides a standardized way to classify services, removing ambiguity and ensuring that the same service is taxed consistently nationwide.
Invoice Mandate: It is mandatory to mention the correct HSN/SAC code on invoices, especially for businesses exceeding a certain turnover threshold.
Accurate Filing: Using the correct building contractors HSN code is a legal requirement for accurate GST filing for builders in India, ensuring that your returns are processed smoothly.

The Primary HSN Code for Construction Services: 9954

For almost all services related to construction, the primary HSN/SAC code falls under Chapter 99, Heading 9954. This is the main category that every building contractor and developer must be familiar with. However, to ensure precise classification, it is important to use the more specific sub-headings under 9954.

Here are the key sub-headings under HSN 9954:

99541: Construction services of buildings (This includes residential, commercial, industrial, and institutional buildings).
99542: General construction services of civil engineering works (This covers highways, streets, bridges, tunnels, railways, and dams).
99543: Site preparation services (Includes services like demolition, site clearing, earthmoving, and excavation).
99544: Assembly and erection of prefabricated constructions.
99546: Installation services (Includes electrical, plumbing, heating, and air-conditioning installation).
99547: Building completion and finishing services (Includes glazing, plastering, painting, and tiling).

Using the right sub-category is essential for clear invoicing and compliance. This level of detail helps tax authorities understand the exact nature of the service provided, which is particularly important for the HSN code for developers in India who might be involved in multiple types of projects.

Actionable Tip: Always review your client agreement or work order. The scope of work defined in the contract will help you determine the most accurate HSN sub-code to use on your tax invoice.

How to Verify Your HSN Code

While the codes listed above cover most scenarios, it’s always best practice to verify them using official government resources. The GST Council provides a dedicated tool for this purpose. You can look up codes for both goods and services to ensure you are always compliant.

We highly recommend using the search tool on the official GST portal to confirm the appropriate HSN/SAC for your specific services.

Official Resource: GST Portal HSN Search Tool

GST Rates for Building Contractors and Developers in India

The applicable GST rate is not a one-size-fits-all solution in the construction industry. It varies based on the nature of the project (residential vs. commercial), the type of housing (affordable vs. non-affordable), and, most importantly, the eligibility to claim Input Tax Credit (ITC).

Standard GST Rate for Works Contracts: 18%

The default or standard GST rate for building contractors in India who provide works contract services is 18% (9% CGST + 9% SGST for intra-state supplies). This rate is typically applicable for:

Construction of commercial properties (offices, shops, factories).
Construction services provided to other businesses (sub-contracting).
Pure labour contracts for construction.
Repair, maintenance, and renovation services.

A significant advantage of this 18% rate is the ability for the contractor to claim Input Tax Credit (ITC). This means you can offset the GST you paid on your inputs (like cement, steel, paints, architect fees, machinery purchase) against the GST you collect from your client. This mechanism prevents the cascading of taxes and reduces the overall cost burden.

Concessional GST Rates for Residential Projects

To make housing more affordable, the government has introduced lower, concessional GST rates for the construction of residential apartments. However, these lower rates come with a crucial condition: the builder cannot claim Input Tax Credit (ITC).

Here are the concessional GST rates for the construction industry in India:

Project Type	Applicable GST Rate	Input Tax Credit (ITC)
Affordable Residential Apartments	1% (without ITC)	Not allowed
Other Residential Apartments	5% (without ITC)	Not allowed
Commercial Apartments in a RREP	5% (without ITC)	Not allowed

Definition of Affordable Housing: An apartment qualifies as “affordable” if it meets specific criteria:

Carpet area up to 60 sq. meters in metropolitan cities (Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai MMR).
Carpet area up to 90 sq. meters in cities or towns other than metropolitan cities.
Gross amount charged is not more than ₹45 lakhs.

This “without ITC” condition is a critical factor. Builders opting for these rates must factor the cost of GST paid on their inputs directly into the project cost, as it cannot be claimed back.

GST on Construction Materials

It’s important for contractors to remember that while their output service has a specific rate, the materials they purchase are subject to their own respective GST rates. For specific codes, you can refer to our detailed HSN Code List for Construction Materials 2025 – Cement, Steel, Bricks & Tiles. This directly impacts project costing, especially when ITC is not available.

Cement: 28% GST
Steel (TMT Bars, etc.): 18% GST
Bricks: 5% or 12% GST (depending on type)
Paints & Varnishes: 28% GST
Sand & Aggregates: 5% GST

Understanding these input costs is crucial for financial planning. When the 18% GST rate is applicable on your service, you can claim ITC on the GST paid for all these materials. However, under the 1% and 5% schemes, this GST becomes a direct cost to your business.

Ensuring GST Compliance for Your Construction Business

Understanding codes and rates is only half the battle. To run a successful construction business, you must ensure consistent and accurate GST compliance, from registration to filing.

When is GST Registration for Builders in India Mandatory?

GST registration is not optional; it is a legal requirement once your business crosses certain thresholds.

Turnover Threshold: Any business providing services with an aggregate annual turnover exceeding ₹20 lakhs (₹10 lakhs for Special Category States) must mandatorily register for GST.
Inter-State Supply: If you provide your construction services to a client in another state, you must register for GST regardless of your turnover. There is no threshold exemption for inter-state supplies.
Compulsory Registration: Certain categories, like individuals liable to pay tax under the reverse charge mechanism, also need to register irrespective of turnover.

Failing to register when required can lead to heavy penalties.

Unsure if you need to register? TaxRobo can help you with seamless GST registration for builders India.

Key Steps for GST Filing for Builders

Once registered, you must file regular GST returns to report your sales, purchases, and pay the net tax liability. You can follow our detailed How to File GST Returns Online: A Step-by-Step Guide of the GST Filing Process & Procedure for assistance.

GSTR-1: This is the return for your outward supplies (sales). You must declare all the invoices you have issued to your clients, along with the correct HSN codes and GST rates. It is typically filed monthly or quarterly, depending on your turnover.
GSTR-3B: This is a summary return where you declare your total sales, total ITC claimed, and pay the final tax amount to the government. This return is filed monthly.

Timely and accurate GST filing for builders in India is non-negotiable. Missing deadlines can result in late fees (₹50 per day, per return) and interest (18% per annum) on the outstanding tax amount.

Conclusion

Mastering GST compliance is a fundamental requirement for success in the Indian construction sector. The key takeaways are simple but critical: the primary building contractors HSN code is 9954, and you must select the appropriate sub-category for your specific service. The GST rates are not uniform; they vary between 1%, 5%, and 18%, largely depending on the type of project (residential vs. commercial) and the availability of Input Tax Credit. Getting these details right is essential for avoiding penalties, maintaining healthy cash flow, and building a reputable business.

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Frequently Asked Questions

1. What is the main HSN code for building contractors?

The primary HSN/SAC code for construction services falls under Chapter 9954. You must choose the specific sub-code based on the nature of the construction (e.g., 99541 for residential buildings, 99542 for civil engineering works, 99543 for site preparation).

2. Can a builder opt for the 18% GST rate for a residential project instead of 5%?

No. For residential projects intended for sale to a buyer after the law change in 2019, the concessional rates of 1% or 5% (without ITC) are mandatory. The 18% rate (with ITC) applies to works contracts where the service is provided to another business (like a sub-contractor to a main contractor) or for commercial construction, not for the direct sale of a dwelling to an end customer.

3. Is GST applicable on the sale of land?

No. The sale of land is not subject to GST. Similarly, the sale of a completed building where the completion certificate has been issued before the sale agreement is signed is also outside the purview of GST, as it is considered neither a supply of goods nor services under Schedule III of the CGST Act.

4. What is the GST rate for renovation or repair services provided by a contractor?

Repair, maintenance, and renovation services also fall under the category of works contracts. These services are generally taxed at 18% GST, and the contractor is eligible to claim Input Tax Credit (ITC) on goods and services used for the repair work.

5. How does GST apply to Joint Development Agreements (JDA)?

GST on JDAs is a complex area. In a JDA, GST is levied on two fronts: first, on the construction services provided by the developer to the landowner in exchange for development rights, and second, on the sale of the developer’s share of apartments to the final buyers. Due to the intricate valuation and timing rules, it is highly recommended to seek expert tax advice for any Joint Development Agreement.

Building Contractors HSN Code: GST Rates Explained!