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GST on works contract services

Meaning of works contract under GST

Works contract has been defined under section 2(119) of CGST Act, 2017 which is reproduced as follows:

Works contract means a contract, wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract and includes contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property

In simple words,

  • Works contract is a composite supply involving both goods and services.
  • Under the erstwhile laws, definition of works contract included work in relation to both movable and immovable properties. However, under GST law, the ambit of works contract has been confined only to immovable property.
  • Works contract will be treated as service and tax would be charged accordingly (not as goods).
  • Works Contract is a Service and hence SAC (Service Accounting Code) will be applicable.
  • No abatement or exemption has been provided under GST in relation to works contract.
  • No reverse charge mechanism (RCM) under GST for Works Contract.

Input tax credit (ITC) on works contract services

The works contractor shall be entitled to claim input tax credit on all input and input services used in the supply of work contract services subject to the provisions of section 17(5) (blocked credit). Section of 17(5)(c) of CGST Act 2017 restricts the recipient to claim ITC of works contract services.

Section 17 (5) (c) read as under:-

(c) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;

Accordingly, GST credit shall be available to the taxpayer if works contract service for;

(i) Installation of plant and machinery or

(ii) Construction of Immovable property which is received as input service for further supply of works contract service.

Examples:

  • ABC builder (Sub-Contractor) provides service of construction of building to XYZ builder (Main Contractor) – XYZ will be entitled to take credit of GST paid to ABC.
  • ABC builder (Contractor) provides service of construction of building to Tech Company –Tech Company shall not be allowed to take credit of GST paid to ABC
  • ABC builder provides service of installation of plant or tools to Tech Company. Tech Company is entitled to take credit of GST paid to ABC.

GST records to be maintained for works contract

As per Rule 56 (14) of the CGST Rules, 2017, every registered person executing works contract shall keep separate accounts for works contract showing –

(a) the names and addresses of the persons on whose behalf the works contract is executed;

(b) description, value and quantity (wherever applicable) of goods or services received for the execution of works contract;

(c) description, value and quantity (wherever applicable) of goods or services utilized in the execution of works contract;

(d) the details of payment received in respect of each works contract; and

(e) the names and addresses of suppliers from whom he received goods or services.

GST Rate

The GST rate for works contract services has been revised by various notifications. A summary version of the revised rates is given in the below table.

Sr No.

Description

GST Rate

1.

Construction of a complex, Building, Civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion certificate.

18%

2.

Composite supply of Works contract

18%

3.

Composite supply of works contract provided to Central, State Government, Union Territory, a local authority, a governmental authority or a government entity by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of

a. Historical Mounument or archaeological site

b. Canal, dam or other irrigation works;

c. Pipeline, conduit or plant for

(i) Water supply

(ii) Water treatment or

(iii) Sewage treatment or disposal

12%

4

Composite supply of works contract provided to Central, State Government, Union Territory, a local authority, a governmental authority or a government entity by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of

(a) Road, Bridge, tunnel or terminal for road transportation for use by general public;

(b) A civil structure or any other original works under Jawaharlal Nehru national urban renewal mission or Rajiv Awas Yojna

(c) A Civil structure or any other original works pertaining to the "In-Situ redevelopment of existing slums using land as a resource"

(d) A Civil structure or any other original works pertaining to the " beneficiary led individual house construction/enhancement under the Housing for all (urban mission/Pradhan Mantri Awas Yojna"

(da) A Civil structure or any other original works pertaining to the "Economically weaker section (EWS) houses" constructed under the affordable housing in partnership by state or Union Territory or local authority or Urban development authority under the housing for All (Urban) Mission/Pradhan Mantri Awas Yojna (Urban)

(db) A Civil structure or any other original works pertaining to the " Houses constructed or acquired under the Credit Linked Subsidy Scheme for Economically Weaker Section (EWS)/Lower Income Group/Middle Income Group – 1 (MIG-1)/Middle Income Group – 2 (MIG – 2)" under the housing for all (Urban) Mission/Pradhan Mantri Awas Yojna (Urban).

(e) A pollution control or effluent treatment plant except located as a part of a factory.

(f) A structure meant for funeral, burial or cremation of deceased

(g) A building owned by an entity registered u/s 12AA of the income tax act, 1961, which is used for carrying out the activities of providing mid day meals under the mid-day meal scheme sponsored by the central government.

12%

5

Composite supply of works contract  by way of construction, erection, commissioning, installation, of

(a) Railways, including monorail and metro

(b) A single residential unit otherwise than as a part of a residential complex;

(c) Low cost houses upto a carper area of 60 square meters per house in a housing project approved by an competent authority empowered under the 'Scheme of Affordable Housing in Partnership' framed by the ministry of Housing and Urban Poverty Alleviation; Government of India.

(d) Low cost Houses upto a carpet area of 60 sq. mts per house in a housing project approved by the competent authority under –

(1) The 'Affordable housing in Partnership component of the housing for all (Urban) Mission/Pradhan Mantri Awas Yojana.

(2) Any housing scheme of a State government

(da) Low cost Houses upto a carpet area of 60 sq. mts per house in a housing project which has been given infrastructure status vide notification of Government of India, in Ministry of Finance, Department of Economic Affairs vide. F.No. 13/6/2009 INF, dated the 30th March, 2017;

(e) Post harvest storage infrastructure for agricultural produce including a cold storage for such purposes; or

(f) Mechanised food grain handling system, machinery or equipment for units processing agricultural produce as foods stuff excluding agricultural beverages.

 

12%

6

Composite supply of works contract provided to Central, State Government, Union Territory, a local authority, a governmental authority or a government entity by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of

(a) A civil structure or any other original works meant predominantly for use other than for commerce, industry or business

(b) A structure meant pre-dominantly for use as i) an educational (ii) a clinical or (iii) an art or cultural establishment; or

(c) A residential complex pre-dominantly meant for self-use or the use of their employees or other persons specified in paragraph 3 of the Schedule III of the CGST Act, 2017

Explanation – For the purposes of this item the term 'business' shall not include any activity or transaction undertaken by the Central Government or any local authority in which they are engaged as public authorities

12%

7

Composite supply of works contract involving predominantly earthwork (i.e constituting more than 75% of the value of the works contract) provided to the Central Government, state Government, Union Territory, Local Authority, a Governmental Authority or a Government entity.

5%

8

Composite supply of works contract and associated services in respect of offshore works contract relating to Oil and Gas Exploration and production in the offshore area beyond 12 Nautical Miles from the nearest point of the appropriate base line.

12%

9

Composite supply of works contract by a subcontractor to main contractor providing services provided in 3 to 6 above to the Central Government, State Government, Union Territory, a local authority, a governmental authority or a Government Entity

12%

10

Composite supply of works contract by a subcontractor to main contractor providing services provided in 7 above to the Central Government, State Government, Union Territory, a local authority, a governmental authority or a Government Entity

5%

11

Construction services other than listed above

18%

SAC code for works contract services

SAC code stands for Service Accounting Code. Under Goods & Service Tax, all tax invoices issued by the service provider must contain the respective SAC code. SAC code applicable on works contract services are given in the below table-

HEADING 9954 - CONSTRUCTION SERVICES

Group 99541 - Construction services of buildings

SAC Code

Service description

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 and the like

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 and marriage halls, malls, hotels, restaurants, airports, rail or road terminals, parking garages, petrol and service stations, theatres 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 nowhere else classified

995419

Services involving repair, alterations, additions, replacements, renovation, maintenance or remodelling of the buildings covered above

Group 99542 - General construction services of civil engineering works

SAC Code

Service description

995421

General construction services of highways, streets, roads, railways and airfield runways, bridges and tunnels

995422

General construction services of harbours, 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 and sewage pipelines, electricity and communication cables and 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 nowhere else classified

995429

Services involving repair, alterations, additions, replacements, renovation, maintenance or remodelling of the constructions covered above

Group 99543 - Site preparation services

SAC Code

Service description

995431

Demolition services

995432

Site formation and clearance services including preparation services to make sites ready for subsequent construction work, test drilling and boring and 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 nowhere else classified

995439

Services involving repair, alterations, additions, replacements, maintenance of the constructions covered above

Group 99544 - Assembly and erection of prefabricated constructions

SAC Code

Service description

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 (such as bus shelters, benches, telephone booths, public toilets, and the like)

995444

Other assembly and erection services nowhere else classified

995449

Services involving repair, alterations, additions, replacements, maintenance of the constructions covered above

Group 99545 - Special trade construction services

SAC Code

Service description

995451

Pile driving and foundation services

995452

Building framing and 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 nowhere else classified

995459

Services involving repair, alterations, additions, replacements, maintenance of the constructions covered above

Group 99546 - Installation services

SAC Code

Service description

995461

Electrical installation services including Electrical wiring and 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 nowhere else classified

995469

Services involving repair, alterations, additions, replacements, maintenance of the installations covered above

Group 99547 - Building completion and finishing services

SAC Code

Service description

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 nowhere else classified

995479

Services involving repair, alterations, additions, replacements, maintenance of the completion/finishing works covered above


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TaxGyata Team

TaxGyata Team