GST applicable for Material & Labour for Construction of Commercial Property

Please note that this is not a substitute for professional advice and you should consult a qualified tax consultant before making any decisions.

According to the Income Tax Act, 1961, the income of a non-resident Indian (NRI) earned in India is taxable1. Whether a person will be classified as NRI or not will depend on the number of days he or she has stayed in India and the quantum of income earned1. The Act provides the definition of residents and NRIs for tax purposes2.

If your friend fits the Resident Indian criteria, his total global income is taxable under Indian tax laws. But if his status for the year is ‘NRI’, only the income earned or accrued in India is taxable3. The income from the commercial property in India would be considered as income from house property and would be taxed accordingly1.

The payments made by your friend to the local material suppliers and labour contractors through online bank transfer from his NRE and NRO accounts may have implications under the Foreign Exchange and Management Act (FEMA), which governs all transactions and investments, the opening of bank accounts, etc., of NRIs2. The NRE account is meant for remitting foreign income to India, while the NRO account is meant for depositing income earned in India1. The payments made from these accounts may require compliance with the FEMA regulations and reporting requirements1.

The payments made without any invoice received or any contract agreement may also raise questions from the income tax authorities, as they may not be able to verify the source and nature of the payments. The payments may also attract tax deduction at source (TDS) provisions, depending on the amount and type of payment1. The payments may also be subject to goods and services tax (GST) if they are made for taxable supplies of goods or services1.

Therefore, it is advisable that your friend maintains proper documentation and records of the payments made and the income earned from the commercial property in India.