GST for Work Contract Services: Labour vs Material Split
Work contracts are common in construction, renovation, and infrastructure projects. These contracts usually involve both the supply of materials and the provision of labour. Understanding the gst for work contract is essential for contractors, builders, and clients to estimate costs and stay tax-compliant.
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What is a Work Contract under GST?
A work contract is a service contract where the supplier provides both goods and services in the course of construction, fabrication, installation, or repair of an immovable property.
- Construction of buildings
- Electrical installation
- Plumbing and sanitary work
- Painting and plastering
Such contracts are not taxed separately on labour and materials—they are treated as a composite supply and taxed as a single service.
Work Contract Tax Rate under GST
The work contract tax rate gst is:
18% GST (Standard Rate)
This rate is applicable to most work contract services unless specifically exempted (like for government housing schemes).
| Type of Work Contract | GST Rate |
|---|---|
| General civil work (commercial or residential) | 18% |
| Sub-contracts for construction projects | 18% |
| Works for local authorities (not exempted) | 18% |
| Government-funded housing under PMAY/CLSS | 12% or exempt (conditions apply) |
Labour vs Material Split Under GST
Under GST, there’s no need to split labour and material values. The entire contract value is taxed as a composite supply at 18%. This simplifies billing and tax filing.
Earlier (Pre-GST) Scenario:
- VAT on materials
- Service tax on labour
- Complex bifurcation and dual taxation
Under GST:
- Single tax @ 18% on total contract value
- No dual taxes
- One invoice, one tax rate
Input Tax Credit (ITC) on Work Contracts
Contractors can claim Input Tax Credit on materials like:
- Cement
- Steel
- Tiles
- Wiring
- Paint
However, if the work contract is for personal use (like building your own house), Input Tax Credit (ITC) is not allowed. ITC is available only when the service is used for business or provided to another registered entity.
GST Compliance for Work Contractors
If you’re offering work contract services:
- GST registration is mandatory if turnover exceeds ₹20 lakhs (₹10 lakhs in special category states)
- Issue GST-compliant invoices with proper HSN/SAC codes
- File monthly/quarterly returns
- Keep documentation of project details, materials, subcontractors, and ITC claimed
Work contract services generally fall under SAC Code 9954.
Conclusion
Understanding the correct gst for work contract ensures clarity in pricing, smooth billing, and proper tax filing. Whether you’re a contractor or client, it’s essential to factor in the 18% GST on the total service.
I am a Chartered Accountant with over 20 years of experience and a finance content writer. I focus on educating people about finance and taxation. I have written many blog posts on finance, taxation, trading, and investment on the BUSY website. My goal is to increase financial understanding by making complex concepts easier to grasp and to support educational programs in India.
Frequently Asked Questions (FAQs)
- What is the GST rate for work contract services?The work contract tax rate GST is 18%, applied on the total contract value.
- Is GST charged separately on labour and materials?No. Under GST, both are clubbed and taxed as a single composite service.
- Can a contractor claim ITC on materials purchased?Yes, if the project is for business use. ITC is not allowed for personal-use constructions.
- What is the GST code for work contract services?Work contract services come under SAC 9954.
- Are there any exemptions for GST on work contracts?Yes. Certain government housing projects and public welfare schemes may be taxed at 12% or even exempted.
