GST Impact on Works Contract – How Will GST Impact Works Contract?

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GST Impact on Works Contract, How Will GST Impact Works Contract?: Detailed Guide for Works Contract under GST Regime..Works contracts are composite contracts involving material and labour. The material portion involving the supply of goods is taxable to Value Added Tax (VAT), while the service portion is liable to service tax. If a new commodity comes into existence, in the process of executing a works contract, then, Central Excise duty may be levied.

Under GST law, works contract could be taxed on gross value with ITC on goods and services being available. It would be considered as a service. It could be at 18%. Credit in respect of Steel, cement, electrical items would more than offset the present net tax in most States. More clarity is expected.

Impact of GST on Work Contractors

GST Impact on Works Contract

In general GST would have impact on pricing, working capital, contract with vendors and customers, ERP systems, processes, accounting etc. Hence, GST would impact every aspect of the business.

Lesser Litigation

Works contract is always an area for litigation on different matters such as valuation, classification etc. GST since subsuming multiple taxes in to it would probably reduce litigation in this area.

Dual Taxation Would be History

Article 366 (29A) (b) enable to state government(s) to tax goods portion involved in the execution of works contract. Further, service portion of works contract is declared service under section 66E of Finance Act 1994.

Under GST, in terms of Schedule II of draft model law works contract including transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; is a service

TDS ON WORKS CONTRACT TRANSACTION UNDER VAT

States laws generally include provision of TDS under capture every works contract transaction. No such specific provision would be there for works contract. However, section 37 of draft model law need to be taken care of.

Further to avoid double TDS section 162E of draft model law also taken care of.

Rate Under GST for Work Contract

Rate of GST would be key for any Industry to analyze the true impact on its business. The VAT rate in various States is different. For Kerala the VAT rate of 7% is under composition or regular will be important as if not under composition then ITC is available. ST across India is as under:

  • a. If VAT paid on actuals with ITC ( say material cost + margin = 73%) where the cost of material is determinable. Then  STR can be paid on 27% x 15% presently. The Excise duty of 12.5 on the material in this case maybe ( 7%) is also a cost of IDT. Entry tax + procurement under CST could be a n additional cost in some cases. Therefore presently the total taxes borne could be almost 22%.
  • b. If VAT is paid on Govt figures then VAT maybe paid on 70% ( 7%) and ST on 40%(6%) + CED ( 7%) + cascading as above. Also around 24%.
  • c. If VAT paid under composition- composition rate +++ Maybe 22%.

If the rate is 18% then works contractors may save monies. However proper documented purchases maybe ensured. Whether the merit rate would be applied + whether composition under GST is available to the WC would also be relevant. GST certainly would bring benefit for the works contractor.

For more details about GST Rate please follow this link…

FAQ’s on Work Contract

Whether Works contracts and Catering services will be treated as supply of goods or supply of services? Why

Works contracts and catering services shall be treated as supply of services as both are specified under Sl. No. 6 (a) and (b) in Schedule-II of the model GST law.

What would be the time of supply in case of works contract?

In terms of sub-clause (f) to clause 5 of Schedule II, the works contract under the GST regime should be treated as supply of service. Accordingly, in terms of Section 13, the time of supply of services shall be the earliest of the following:

  • (a)  Date of issue of invoice;
  • (b)  Due date of issue of invoice under Section 28;
  • (c)  Date when the payment entry in relation to supply of services is recorded in the books of accounts;
  • (d)  Date on which the payment is credited to supplier’s bank account.

Whether VAT dealers claiming standard deductions towards labour and similar other charges in case of works contracts under the respective VAT laws be termed as composition tax payers?

The VAT dealers who are determining the labour and other similar charges portion of the works contract based on the standard deduction method (such as 30%, 25% etc.) cannot be termed as falling under the composition scheme. These are merely alternative statutorily recognised valuation provisions for determining the value of materials transferred in execution of works contract and cannot be considered as a scheme of tax payment ‘in lieu’ of a normal scheme.

What is the implication of GST on long term works contracts or construction contract?

Good or services supplied on or after the appointed day shall be taxable under the GST law. Goods and services chargeable to tax/duty under the earlier law shall continue to be taxable under the earlier law. For determining whether the taxable event has occurred (such as removal, point of taxation, sale, etc.) under the earlier law, it is important that the provisions of the earlier law are examined.

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If you have any query regarding “GST Impact on Works Contract” then please tell us via below comment box…

20 Comments
  1. MOHAN R says

    IT APPERAS FROM YOUR ARTICLES THAT IN GST WORKS CONTRCAT IS ONLY FOR CIVIL CONSTRUCTION SERVICES . KINDLY DETAIL ME WHAT ALL THE OTHERS SERVICES COVERED UNDER WORKS CONTARCT IN GST WITH RELEVANT PROVISION IN THE RULES . PLEASE

    1. NARAYANA DAS R says

      KINDLY LET US KNOW THE DETAILED GST PROVISION PROVIDED FOR ELECTRICAL H T & L T LINE SUPPLY & INSTALLATION (COMPOUND TAX 7%) FOR ELECTRICAL WORKS CONTRACT.

  2. Vinay Gandhi says

    In case of determination of point of taxation of Works Contract, I feel the Works contract to be treated as Continuous supply of services since the contract extends to more than 3 months

  3. MOHAN R says

    REPAIR AND MAINTENACE OF A VEHICLE OR MACHINE,WHERE THE SERVICE PROVIDER WILL ADD MATERIAL AND SERVICE , IN SUCH A SITUTAION, HOW IT WILL BE TREATED IN GST. tHE WORKS CONTRACT DEFINIATION CONFINES WITH CIVIL CONSTRUCTION WORK. THEN WHAT ABOURT OTHER WORKS CONTRACT AFTER GST. HOW IT SHOULD BE TAXED?

    1. Anish says

      work contract under gst is applicable only for immovable property

  4. H.SHRIDHAR says

    WHETHER WE OPT COMPOSITION ON WORKS CONTRACT IF SO RATE OF TAX AND OTHER CONDITIONS PLEASE CLARIFY

  5. Jagdish says

    What will be gst where input of contract are exempted by paying excise duty. Like water pipes pumps or water treatment plant equipment.

  6. Arabinda chakravarty says

    Nature of contract bill with abatment 70 percent what will be the imposed rate of gst

  7. RRswamy says

    As per definition under CGST Act, 017, Works Contracts covers immovable property only. What is the position with respect to works contracts in respect of movable property is not known. Does it mean that even though material and labour is involved in respect of movable property, activity of transfer of property in goods while carrying out an activity of works contract in respect of a movable property is not a works contract under GST.

    Your inputs please..

    RRswamy

  8. Mahesh G. N. says

    There are various infrastructure projects say for water Supply, sewage treatment, Road work etc being executed by EPC contractors for various Departments like Corporations, Public Health Deptt., MES etc wherein there is provision of Excise Exemption on various items consumed in the projects like Pipes, Valves, Pumps, Cement, steel etc under excise notifications like 12/2012, 108/95 etc.

    What will be the validity of such Excise exemption certificates issued by departments after implementation of GST.

    Secondly how such works contracts will be assessed under GST?

  9. Prasanna says

    What is the gst slab for works contract and how will it be implemented , can I have a detailed report ., give in the case of a company executing a road contract by purchasing bitumen form Indian oil corporation previously billed with base rate plus excise plus vat , then blue metal base rate plus vat , then Labour charges .. please explain

  10. pawan says

    Sir,

    i have done some loading or unloading work from JCB Machine in our plant. so please clear that is work contract applicable or not & allso tell me about rate of service in GST of above matter

    1. S Rangarajan says

      What about pure labour charges contract where no material is supplied? If owners of 4 apartme nts in the building ( 4 floors 1700 Sft each) join together,directly buy materials and engage their own pure labour contractors in such a way that no labour contractor has more than 20 lakhs turnover in s FY, is there any liability on contractor(s)? Is there any liability like TDS on owners?

  11. S Rangarajan says

    We are building a Family Home with 4 Floor Apartments. Each owner will buy tax paid materials for their floor and engage a labour contractor value Rs 15-20 Lakhs each. Common Areas like Stilt Car Park Compound Wall, UG sump, OH Tank will be shared equally.Supervsion is done by owners, there is no ‘Builder’. There is no sale of property here. Is there any GST liability.?

    1. Ca Suryakanta rana says

      No,GST is leveid on such cases
      . Again,,there is a exemption available for pure labour. Service relatiing to residential house..

      1. S Rangarajan says

        Thank You Mr Ca Suryakanta rana for your comment on GST exemption for Pure Labour Services availed for a single residential building with 4 apartment floors. The exemption law seems to has a caveat ” Other than a residential complex’. Does it mean a single residential building for a Jt family of 4 (Parents & Siblings) apartments is not eligible? Will it be called as a Residential Complex?

  12. Sudhir Kumar says

    If a work contractor work done in different state is it complsory registration in every state for work contractor?

  13. KEERTHI says

    Our company is doing water supply works for government department.Composite VAT deducted in the bill was 4%.How much will be deducted as GST in the present bill@2% or 18%.Please clarify.

  14. RAJ KUMAR says

    Sir,

    There are works contracts which are in stage of award now after implementation of GST, however, finalized before 01-07-2017. Now, what is the impact of GST on these works. whether to award or not at this stage.

  15. Debanandan Saran Deb says

    sir,
    our business Work contract new GST rate-12% , please you have to calculated the indirect taxes like Vat, service tax, excise duty etc. on our inputs in the pre GST regim and GST paid on inputs in post GST regime, for GST Impact. (fabrication of steel Bowstring girder Rate-27,215.55/-all tax Included)

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