Construction sector may benefit due to input tax credit under GST: Report

NEW DELHI: The construction sector is likely to benefit from the availability of input tax credit under the goods and services tax (GST) despite falling under the higher rate slab of 18%, according to rating agency ICRA.

"As under the current tax regime the benefit of input tax paid is not fully available, the benefits arising out of input tax credit on the raw-materials available under the GST regime would result in an overall neutral tax incidence for construction services," the rating agency said.

For infrastructure projects under implementation also, the GST rates could result in an increase in cost, if there is insufficient built in contingency factor and limited scope for contract renegotiation, according to ICRA.

"However, since under the GST regime, there is credit available for input taxes paid, it can counter-balance the higher GST rates. Thus the higher GST rates should get neutralised if the contractor passes on the benefit of higher input tax credit available to them," it said.

Majority of construction contracts fall under the nature of work contracts, which is overlapping between supply of services and supply of goods.

The service tax applicable for construction companies is generally around 6%, assuming 40% services portion of the contract. The value added tax (VAT) payable varies across states ranging from 1-15% and is applicable on the supply of goods portion of the contract.

Many construction activities like construction of roads, dams, irrigation are also under service tax exemption list.

GST aims to bring one uniform tax across the country, eliminating several layers of tax collection. The taxes will be levied at a four-tier GST tax structure of 5%, 12%, 18% and 28%, with lower rates for essential items and the highest for luxury and de-merits goods that would also attract an additional cess.

The government aims to rollout GST from July 1, 2017.

SOURCE: ET Realty