Labour HSN Code: Understanding Classification
Many businesses engage labour for construction, fabrication, loading, unloading and other support work. These services are classified under service codes that are treated like HSN codes for GST purposes. Correct labour HSN code use is important wherever GST is charged on labour bills.
HSN Code for Skilled Labour
Skilled labour services such as fabrication work, electrical fitting, plumbing or machine operation are usually billed as service contracts. These services are grouped under service accounting codes that cover support services or works contract services. If the labour supply also includes a significant portion of materials, it may be treated as a composite supply.
Labour SAC Code Classification and GST Rates
Here are some commonly used HSN codes and GST rates for this category
4 Digit SAC Code Classification
| HSN/SAC Code | HSN/SAC Code Title | GST Rate |
|---|---|---|
| 9954 | Other construction services | 18% |
| 9985 | Other support services | 18% |
| 9986 | Support services to mining, electricity, gas and water distribution | 18% |
| 9993 | Services provided by the cord blood banks by way of preservation of stem cells or any other service in relation to such preservation. | 0% |
| 9995 | Service by an unincorporated body or a nonprofit entity registered under any law for the time being in force, to its own members by way of reimbursement of charges or share of contribution Ð (a) as a trade union; (b) for the provision of carrying out any activity which is exempt from the levy of Goods and service Tax; or (c) up to an amount of 5000 rupees (7500 substituted from 25/01/2017)per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex. | 0% |
6 Digit SAC Code Classification
| HSN/SAC Code | HSN/SAC Code Title | GST Rate |
|---|---|---|
| 998519 | Other employment & labour supply services n.e.c. | 18% |
| 999316 | Medical Laboratory and Diagnostic-imaging services | 0% |
* GST rates may vary based on the latest GST notifications and amendments
Labour Law and HSN Code
Labour law mainly covers wages, working hours, safety and social security. HSN code does not change these legal rights, but it affects how GST is charged on labour bills. For example, when a contractor raises an invoice for supplying workers to a factory, the correct service code and GST rate must be printed on that invoice.
Some categories of pure labour in construction for affordable housing or public welfare projects may get special GST treatment. Contractors should carefully read GST notifications before deciding whether tax is chargeable on a particular labour contract.
How Labour HSN Code Affects Wages and Contracts
While HSN code does not directly fix the wage rate, it affects the cost to the client because GST is added on top of labour charges where applicable. If GST is to be charged on a labour contract, both parties must agree on whether the quoted rate is inclusive or exclusive of tax.
Using the correct labour HSN code also helps contractors claim input tax credit on materials and services they purchase for the project. Clear classification reduces the risk of disputes about whether a transaction is exempt or taxable.
Conclusion
Labour HSN code is mainly used for billing skilled and unskilled services that fall under GST. Correct service codes help contractors and businesses show labour income and related tax correctly in their returns. Whenever there is doubt, it is safer to review the nature of work and refer to the latest GST circulars before finalising the code.
I am a chartered accountant with over 14 years of experience. I understand income tax, GST, and balancing financial records. I analyze financial statements and tax codes effectively. However, I also have a passion for writing, which is different from working with numbers. Recently, I started writing articles and blog posts. My goal is to make finance easier for everyday people to understand.
Frequently Asked Questions
-
What is the HSN code for skilled labour?
There is no single HSN code for all skilled labour. Skilled labour is usually classified under service codes such as 9985 for manufacturing support or 9987 for works contracts, depending on the nature of work.
-
How is labour cost defined under HSN codes?
Under GST, labour cost becomes taxable when it is part of a taxable service. The relevant service code covers the type of activity performed rather than the wage structure itself.
-
Does HSN code affect the hiring of labour contractors?
HSN code does not control hiring decisions, but it affects how contractors raise invoices and how clients claim input tax credit. Using the correct code makes tax positions clear for both sides.
-
How is GST applied to labour charges?
GST is applied to labour charges when the underlying service is taxable and not covered by any exemption. The rate is generally the standard service rate, though some special projects may get concessional treatment.
-
Why is HSN code essential for labour law?
From a compliance view, HSN code helps link labour contracts with the correct GST treatment. It ensures that invoices, books of account and GST returns speak the same language when labour services are reviewed by authorities.