The evasion of Goods and Services Tax (GST) in the construction and works contracts sector in India has been significant, with figures exceeding ₹10,000 crore in the fiscal year 2023-24 (FY24). The Directorate General of GST Intelligence (DGGI), responsible for monitoring and preventing tax evasion, reported that approximately ₹8,900 crore of the evaded amount is still outstanding.
The primary methods of evasion identified include:
- Fake Input Tax Credit (ITC): Claiming tax credits using fake invoices.
- Incorrect Availment of Exemption Notifications: Misusing exemptions meant for certain categories.
- Undervaluation: Reporting lower values for services to reduce tax liability.
- Non-payment of Taxes: Failing to pay the applicable GST altogether.
The DGGI registered 1,813 cases related to GST evasion in this sector, with an alleged evasion amount of approximately ₹10,600 crore. During the investigation, taxpayers have voluntarily paid around ₹1,640 crore.
GST Rates and ITC Rules for Works Contracts and Construction Services
According to the current GST regulations:
- GST Rate: The GST rate for works contracts and construction services was increased to 18% effective from July 18, 2022, from the previous rate of 12%.
- Input Tax Credit (ITC):
- ITC is not available for works contract services used for the construction of immovable property (excluding plant and machinery) when supplied for personal use.
- ITC is also not available if the services are received for constructing immovable property on one's account.
This information aligns with the government's efforts to tighten GST compliance and reduce tax evasion, ensuring better tax collection and adherence to the rules. The significant evasion figures highlight the challenges faced by the authorities in ensuring compliance in the construction sector.
