GST on works contract services
CA Anand Singh | 29-Aug-2022
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, a works contract is a composite supply involving both goods and services. Under the erstwhile laws, the 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 the works contract.
- No reverse charge mechanism (RCM) under GST for works contract.
- The composition scheme does not apply to works contracts.
Input tax credit (ITC) on works contract services
The works contractor shall be entitled to claim an input tax credit on all input and input services used in the supply of works contract services subject to the provisions of section 17(5) (blocked credit). Section 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, input 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.
Place of supply in respect of works contract
1. If the supplier and recipient are located in India, the place of supply would be where the immovable property is located.
2. In case the immovable property is located outside India and the supplier as well as recipient both are located in India, the place of supply would be the location of the recipient.
3. In cases where either the Supplier or the Recipient are located outside India, the place of supply shall be the place where the immovable property is located or intended to be located.
Valuation of supply
Valuation of a works contract service is dependent upon whether the contract includes a transfer of property in land as a part of the works contract. In case of a supply of service involving the transfer of property in land or undivided share of land, the value of supply of service and goods portion in such supply shall be equivalent to the total amount charged for such supply less the value of land or undivided share of land.
Value of land or undivided share of land in such supply shall be deemed to be one-third of the total amount charged for such supply.
List of GST records to be maintained for works contract
As per CGST Rule 56(14), every registered person executing works contract is required to maintain separate accounts for works contract showing the following details -
(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.
Time limit to issue Tax Invoice
Works contract services shall be treated as ‘continuous supply of services’ as these services are provided under a contract with periodic payment obligations and in most of the cases the period exceeds 3 months.
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 from the contract: the invoice shall be issued on or before due date of payment.
- When due date of payment is not ascertainable from the contract: the invoice shall be issued before or at the time when supplier receives payment.
- When payment linked with completion of event, i.e., milestones: the invoice shall be issued on or before date of completion of that event.
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 to 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 |