New 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.
New GST Rate on Work Contracts in India
The Government of India is updating GST rates effective after 22 Sep 2025. Below are the expected new GST rates for common work contract categories (no compensation cess).
| Type of Work Contract | New 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 | 5% or exempt (conditions apply) |
Old Work Contract Tax Rate under GST
(Old GST Rates – Applicable Until 21st September)
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 | Old 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.
