Works Contract

  • Meaning:-Works contract is an agreement which is a mixture of service or labour and transfer of goods. Thus, it is a contract for building, construction, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods is involved.

Here, construction includes re-construction, renovation, additions or alterations or repairs.
As we know works contract involves supply of labour and material as well. Before GST, goods were subject to VAT and services for labour were chargeable under service tax.  Although, abatement of 40%/70% was available on the total amount on which service tax shall be levied.

Under GST, Works Contract is a composite supply and as per Clause 6 of schedule II of CGST Act it shall be treated as supply of services.

What is composite supply?
It means supply of two or more taxable goods or services or both which are naturally bundled with each other in the ordinary course of business, one of which is a principal supply.
For Example:- In works contract, supply of services as well as goods are involved but principal supply shall be the supply of services as per the Act. Therefore, whole amount shall be taxable as supply of services.

  • Maintenance of Accounts: Every registered person shall keep separate accounts for works contract showing :-
  1. Name and address of the person on whose behalf works contract is executed
  2. Description, value and quantity of goods or services received or utilized in execution of works contract.
  3. Details of payment received in respect of each works contract.
  4. The names and addresses of suppliers from he received goods or services.
  • GST Rate:- 18%
  • Eligibility of Input Tax Credit: ITC shall not be available in case of-
  1. Works contract services when supplied for construction of an immovable property (other than Plant & Machinery) except where it is an input service for further supply of works contract service.
  2. Goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account.

Construction Services

  • Schedule II of CGST Act:-Construction of a complex, building, civil structure intended for sale to a buyer shall be the supply of services except where the entire consideration has been received after issuance of completion certificate.

Therefore, if consideration has been received after completion certificate then it shall be treated neither as supply of services nor as supply goods as per schedule III of CGST Act.
Here construction includes additions, alterations, replacements or remodeling of any existing civil structure.

  • GST Rate:-12% (The value of land is deemed to be one-third of the total amount charged for such supplies.)

Hence, if a builder constructs a building which includes value of land as well then it shall be deemed that value of land is one third of the total amount and this amount shall be deducted from the total amount for the purpose of calculation of amount of GST as sale of land shall be treated neither as supply of goods nor as supply of services as per schedule III of CGST Act.

  • Input Tax Credit:- Allowed (with no refund of accumulated Input Tax Credit)

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