Ahead of the Goods and Services Tax (GST) rollout, the government on Thursday notified related rules and rates while raising the tax on construction services, including composite works contract, from 12% to 18%. The notified rules also provide an exemption to daily supplies worth Rs 5,000 and below from tax deducted under reverse charge mechanism. While the rates announced by the GST Council earlier pegged the GST rate for construction services at 12%, including the value of the land, the notified rules say the service tax charged on construction supply will now be levied on value of supplies minus the value of land. The value of land will be deemed to be one-third of the value of construction services.
“Since the land value to be excluded for taxation is one-third of the value of total supplies, the effective GST rate on the construction services will remain at 12%,” Abhishek Jain, tax partner at EY India, said. Additionally, the government has exempted unregistered supplier whose value of supplies to a registered buyer doesn’t exceed Rs 5,000 per day from GST. Under the earlier rules, a registered recipient would deduct tax under the reverse charge mechanism for supplies made by an unregistered supplier.
This will, however, only apply to intra-state supplies. Similarly, the notified rules also exempt unregistered supplier from tax deducted at source by the recipient for intra-state supplies. Moreover, it brought clarity to the transactions involving second-hand goods by exempting it from any tax when a unregistered person sells such commodity to a designated second-hand dealer. In normal course, any supply from an unregistered entity to a registered one is liable for GST.