A construction contractor providing a works contract service (SAC 9954) is taxed at 18% with full ITC — this now covers both commercial and government civil projects, because the GST 2.0 reform (effective 22 September 2025) removed the earlier 12% government-works slab. Contractors building residential flats for a developer are at 5% (no ITC), or 1% for affordable housing. Repair and renovation is always 18%.
Construction Contractor GST Rates — Decision Table
Every common contractor scenario, the applicable rate and whether Input Tax Credit is available. Rates reflect the GST 2.0 two-slab structure.
| Type of Work | GST Rate | ITC | Notes |
|---|---|---|---|
| Commercial construction (offices, malls, factories) | 18% | Yes | Works contract · SAC 9954 |
| Government civil works (roads, bridges, canals) | 18% | Yes | Was 12% before 22 Sep 2025 |
| Residential — non-affordable new build | 5% | No | Concessional real-estate rate |
| Affordable housing (EWS/LIG, value/area limits) | 1% | No | Concessional scheme |
| Pure labour — single residential unit | Exempt | — | Notification 12/2017 |
| Repair / renovation (any property) | 18% | Yes | Not original construction |
| Interior decoration & fit-out | 18% | Yes | Works contract · SAC 9954 |
| Annual maintenance contract (AMC) | 18% | Yes | Service supply |
| Sub-contractor to works contract | 18% | Yes | Follows the project rate |
Rates reflect the GST 2.0 two-slab structure effective 22 September 2025 — the 12% works-contract slab was withdrawn. Confirm on the official GST portal before invoicing.
Can a Contractor Claim ITC?
This is where most contractors get it wrong. The block on works-contract ITC in Section 17(5)(c)&(d) applies to the recipient of the construction — the property owner — not to the contractor supplying the service.
Works contractor — ITC allowed
- You supply a works-contract service (SAC 9954)
- Claim ITC on cement, steel, scaffolding, tools
- Claim ITC on plant, machinery & sub-contractor bills
- Architect, legal & capital-goods credits allowed
- Net GST = output 18% − eligible input credits
Owner / developer building for self
- You build on your own land for sale or own use
- ITC on the construction is blocked · 17(5)(d)
- Residential 5%/1% schemes come with no ITC
- GST on inputs becomes an embedded cost
- White goods & furniture credits blocked either way
The concessional 5% (non-affordable) and 1% (affordable) residential rates are given on the express condition that no input tax credit is claimed. If you construct residential flats under these rates, GST on cement, steel and other inputs is a sunk cost you price into the flat — only 18% works contracts carry through full ITC.
Not sure whether your credits are eligible or blocked?
Get My ITC Position Checked →GST for Sub-contractors
A sub-contractor supplies a works-contract service to the main contractor and charges GST at the same rate as the project. Post-GST 2.0, that is 18% for both commercial and government civil works (the earlier 12% concession for sub-contractors on government projects has gone with the 12% slab).
- The main contractor claims ITC on the sub-contractor's GST and on material suppliers.
- Net GST payable = output GST − ITC from sub-contractors and inputs.
- Pure-labour sub-contract for a single residential unit is exempt (Notification 12/2017).
- Government departments deduct 2% TDS under Section 51 on payments above ₹2.5 lakh.
How GST Adds Up — ₹10 lakh Contract
18% Commercial / govt works contract
5% Residential flat construction
The 18% rate looks higher, but full ITC on cement, steel and sub-contractor bills usually makes the effective cost lower than a 5% no-ITC job once input GST is factored in.
Running government or commercial contracts? Get your ITC and TDS reconciled.
Get Contractor GST Help →Renovation, Repair & Interior Work
Renovation, repair, interior decoration and AMC are always 18% as works-contract services (SAC 9954), irrespective of whether the property is residential or commercial. The concessional 5%/1% residential rates apply only to original construction, never to renovation of an existing building.
Charge 18% with ITC when
- You do commercial or government works contracts
- You repair, renovate or fit-out any property
- You run AMC, painting, plumbing or electrical works
- You want to claim ITC on materials & sub-contractors
Only 5% / 1% (no ITC) when
- You construct residential flats for a developer/buyer
- The project qualifies as affordable housing (1%)
- You cannot — and must not — claim input tax credit
- Composition scheme is NOT available for works contracts
Composition scheme is not available for works-contract or construction services — a contractor must file regular GSTR-1 and GSTR-3B. Registration is mandatory once aggregate turnover crosses ₹20 lakh (services) — most contractors, supplying goods with labour, cross the ₹40 lakh goods threshold and register early.
Want the right classification and clean monthly filings?
Talk to a GST Expert →Construction Contractor GST Compliance
The full compliance picture for a works contractor, sub-contractor or developer:
- GST registration (GSTIN)
- Correct rate & SAC 9954 classification
- Tax invoice with rate breakup
- ITC reconciliation (GSTR-2B)
- GSTR-1 (outward supplies)
- GSTR-3B (monthly tax & ITC)
- GST TDS credit (Section 51 govt clients)
- RCM on security / legal / sponsorship
- GST on advance receipts (receipt voucher)
- E-invoicing where applicable
- E-way bill for material movement
- GSTR-9 / 9C annual return & reconciliation
For a service like a works contract, GST is payable on advances received in the month they are received — issue a receipt voucher, not a tax invoice. Missing this is a frequent contractor error that triggers interest and late fees.
Frequently Asked Questions
Related TaxClue services
Running Construction or Works Contracts?
Get your GST registration, rate classification, ITC reconciliation, GST-TDS credit and monthly filings handled by TaxClue's CA-led team — 100% online, across India.