HSN 9954, under the Goods and Services Tax (GST) regime, pertains to “Construction Services of Buildings” While it seems straightforward, claiming input tax credit (ITC) on services covered under this HSN can be tricky and may lead to notice from the department.
It should be understood the scenario where the ITC on this HSN is allowed and under what circumstances. I will discuss the parameters, where you can take input tax credit (ITC) on HSN 9954 and avoid any issues from the tax authorities.
Details of 9954 HSN with GST Rate
GST rate is 1% or 5% for housing under construction
GST rate is 0% for purchase or sale of land
GST rate is 12% on construction of commercial building
GST rate is 18% on works contract services or repair or installation type of services.
The GST rate is defined in the Notification No. 11/2017-CT and 12/2017-CT
I have already discussed the different aspects, which you can read here – GST on Homebuyers and Land buyers: Detailed Guide (2024)
But, what about HSN and input tax credit claim in relation to it. Actually, HSN 9954 – “Construction Services” and GST rate vary depending on the nature of your business. First, we will see the detailed list of this HSN: –
| 9954 | Construction services |
| 995411 | Construction services of single dwelling or multi dwelling or multi-storied residential buildings |
| 995412 | Construction services of other residential buildings such as old age homes, homeless shelters, hostels etc |
| 995413 | Construction services of industrial buildings such as buildings used for production activities (used for assembly line activities), workshops, storage buildings and other similar industrial buildings |
| 995414 | Construction services of commercial buildings such as office buildings, exhibition & marriage halls, malls, hotels, restaurants, airports, rail or road terminals, parking garages, petrol and service stations, theaters and other similar buildings. |
| 995415 | Construction services of other non-residential buildings such as educational institutions, hospitals, clinics including veterinary clinics, religious establishments, courts, prisons, museums and other similar buildings |
| 995416 | Construction Services of other buildings n.e.c |
| 995419 | Services involving Repair, alterations, additions, replacements, renovation, maintenance or remodeling of the buildings covered above. |
| 995421 | General construction services of highways, streets, roads, railways and airfield runways, bridges and tunnels |
| 995422 | General construction services of harbors, waterways, dams, water mains and lines, irrigation and other waterworks |
| 995423 | General construction services of long-distance underground/overland/submarine pipelines, communication and electric power lines (cables); pumping stations and related works; transformer stations and related works. |
| 995424 | General construction services of local water & sewage pipelines, electricity and communication cables & related works |
| 995425 | General construction services of mines and industrial plants |
| 995426 | General Construction services of Power Plants and its related infrastructure |
| 995427 | General construction services of outdoor sport and recreation facilities |
| 995428 | General construction services of other civil engineering works n.e.c. |
| 995429 | Services involving Repair, alterations, additions, replacements, renovation, maintenance or remodeling of the constructions covered above. |
| 995431 | Demolition services |
| 995432 | Site formation and clearance services including preparation services to make sites ready for subsequent construction work, test drilling & boring & core extraction, digging of trenches. |
| 995433 | Excavating and earthmoving services |
| 995434 | Water well drilling services and septic system installation services |
| 995435 | Other site preparation services n.e.c |
| 995439 | Services involving Repair, alterations, additions, replacements, maintenance of the constructions covered above. |
| 995441 | Installation, assembly and erection services of prefabricated buildings |
| 995442 | Installation, assembly and erection services of other prefabricated structures and constructions |
| 995443 | Installation services of all types of street furniture (e.g., bus shelters, benches, telephone booths, public toilets, etc.) |
| 995444 | Other assembly and erection services n.e.c. |
| 995449 | Services involving Repair, alterations, additions, replacements, maintenance of the constructions covered above. |
| 995451 | Pile driving and foundation services |
| 995452 | Building framing & Roof Framing services |
| 995453 | Roofing and waterproofing services |
| 995454 | Concrete services |
| 995455 | Structural steel erection services |
| 995456 | Masonry services |
| 995457 | Scaffolding services |
| 995458 | Other special trade construction services n.e.c. |
| 995459 | Services involving Repair, alterations, additions, replacements, maintenance of the constructions covered above. |
| 995461 | Electrical installation services including Electrical wiring & fitting services, fire alarm installation services, burglar alarm system installation services. |
| 995462 | Water plumbing and drain laying services |
| 995463 | Heating, ventilation and air conditioning equipment installation services |
| 995464 | Gas fitting installation services |
| 995465 | Insulation services |
| 995466 | Lift and escalator installation services |
| 995468 | Other installation services n.e.c. |
| 995469 | Services involving Repair, alterations, additions, replacements, maintenance of the installations covered above. |
| 995471 | Glazing services |
| 995472 | Plastering services |
| 995473 | Painting services |
| 995474 | Floor and wall tiling services |
| 995475 | Other floor laying, wall covering and wall papering services |
| 995476 | Joinery and carpentry services |
| 995477 | Fencing and railing services |
| 995478 | Other building completion and finishing services n.e.c. |
| 995479 | Services involving Repair, alterations, additions, replacements, maintenance of the completion/finishing works covered above. |
Condition to avail ITC on Commercial and Presential Building
Now, I will discuss the conditions to avail ITC on this HSN. First and the most important condition, What is the nature of your business?
You can avail ITC, if you are supplying the same services. Suppose, You are a contractor and you get a project to build a commercial building. You can charge 12% GST from your client and can also take ITC in GST returns as you are engaged in the same business.
However, in another illustration, Suppose you are an IT company, your supply of service is information technology and you can avail ITC on services that support it, but cannot avail ITC on GST paid on construction of your office. This is clearly mentioned in the Section 17(5) – Block Credit.
Further, you also cannot take ITC, when services received for your personal consumption means for renting, staying or activity other than works contract.
Mostly the GST rate is 18% only as it is a supply of service under HSN 9954. However, it is different for construction of residential, or commercial buildings.
You can search the GST rate on cbic-gst.gov.in as per your services received and supplied.
Brief of ITC conditions under HSN 9954
Here are some specific situations where claiming ITC under HSN 9954 might be disallowed:
- Construction of Residential Dwellings: Generally, ITC cannot be claimed on construction services for self-occupied residential dwellings.
- Construction Services for Exempt Supplies: If the constructed building is solely used for providing exempt supplies (e.g., religious institutions), claiming ITC is not allowed.
- ITC on construction or manufacturing plant is not allowed if your output business is different. for example, your output is information and software services, you are not allowed to take ITC on construction work.
- ITC is allowed on Services for repair and maintenance (not on goods) under HSN 995469 or rent paid to the landlord.
- ITC is allowed if you receive services from sub-contractor and you are the main contractor as the main contractor is engaged in supply of same services but the main person who receives these for different output services is not allowed to avail ITC. This concept falls under Section 17(5)(d) of the CGST Act 2017.
- Non-fulfillment of Conditions: If the prescribed conditions for claiming ITC on construction services under HSN 9954 are not met (e.g., not filing returns or not maintaining proper records), the ITC claim might be disallowed.
- ITC on construction work for further renting of premises or building is also not allowed, as your main business is renting not construction of the site.
Mistakes made by companies on availing ITC
It is established that if you are an IT company, you cannot avail ITC on HSN 9954. But, what about HSN 995419 – “Services for building”, 995468 – “Installation charges”, and HSN 995469 – “Services involving Repair, alterations, additions, replacements, maintenance of the installations”
This is like services received from your landlord to maintain your premise or office space. It is allowed. But, Input Tax Credit on direct construction of immovable property like tiles, painting, wiring, etc., received by you, is not allowed as it is not used in furtherance of your business, as your main supply of service is information technology or software development. Even your landlord is not allowed to take ITC on construction as its main supply of service is renting.
This usually comes to notice to the companies when they receive notice or refund amount gets reduced after deducting ITC available on HSN 9954.
How to avoid this?
Sometimes, your supplier mentions the wrong HSN and you might have paid for services provided by your landlord to maintain the premise or office building. To avoid this, you check the HSN code mentioned by the supplier before availing ITC and also ensure that 6-digit HSN is mentioned with clear explanation as mentioned in the list. This way you can avoid being penalized.
Don’t enter 4 digit HSN in your input invoice or output invoice. Always mention 8 digit HSN with detailed description to prove the services supplied or received correctly and avoid any penalty from the department.
Hence, it is advised to thoroughly understand the government regulations and conditions for claiming ITC on construction services and meticulously document all invoices, bills, and other relevant documents related to the construction services availed. These records are crucial for claiming and defending your ITC claims.
Conclusion
When it comes to getting ITC on building services, HSN 9954 can be both good and bad. It might help with taxes, but there are strict rules and conditions that must be met. You need to get a 6-digit HSN with a clear description of services received from the supplier on the invoice. As the invoice is the only documentary evidence.
You can use this HSN correctly and avoid problems with GST returns if you know what could go wrong and take the right steps to protect yourself. Remember that planning ahead, keeping records, and getting professional help can greatly lower the chance of having problems with your return.
