Works Contract Under GST

Meaning of Works Contract

A works contract is a contract of service which may also include supply of goods in the contract. Basically, works contract is a composite supply of both goods and services. In a general sense, works contract may relate to both movable and immovable property.

Classification of Work Contract Service

As per Schedule 2 of CGST Act, Work contract services considered as supply of services not supply of goods because predominant element in work contract services is supply of services.      

Rate of GST under work contract services:-

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Place of supply in case of work contract:-

As per 12(3) of IGST Act, if both supplier and recipient located in India then place of supply will be the place where immovable property is located but in case if immovable property is located outside India then place of supply will be location of recipient.

As per Sec 13(4) of IGST Act, if either supplier or recipient located outside India then place of supply will be place where immovable property is located.

Exemption under Work Contract

As per Entry no. 11 of sec 11 of CGST Act, Pure labour services for construction /erection /commission /installation /renovation or alteration to a single residential unit or to a house construction under PMAY (Pradhan Mantri Awas Yojana) is exempt under Goods & Service Tax Act.

ITC availability for Work Contract

As per Sec 17 (5) (C) of CGST Act, Input Tax Credit for works contract can be availed only by a person who is engage in the same line of business and that Person is using such services for further supply of works contract service.

However, if the main contractor provides service of works contract (other than for plant and machinery) to a company, the Input Tax Credit of GST paid on the invoice issued by the works contractor will not be available to the Company.

Time Limit to issue Tax Invoice

Works contract service is a continuous supply of service and the time limit for issue of tax invoice in case of continuous supply of services shall be as follows:              

When due date of payment is ascertainable in contract: The date GST Invoice shall be on or before due date of payment.

When due date of payment is not ascertainable in contract:  The date of GST invoice shall be before or at the time when supplier receives payment.

When the payment is linked with completion of event: The date of GST invoice shall be on or before date of completion of such event.