Works Contract under GST

Works Contract under GST

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General
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Created By Admin Last Updated Fri, 09-Oct-2020

‘Works Contract’ means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract.

The term works contract has been restricted to contract for building construction, fabrication, etc., of any immovable property only. Any composite supply undertaken on movable property such as fabrication or painting job done in automotive body shop or annual maintenance contracts, will not be covered under works contract as defined in the GST Act. Such contracts would be treated as composite supplies and not as Works Contracts for the purposes of GST.

Supply of Service:

The composite supplies of works contract shall be treated as supply of services under GST.

GST Rates of Works Contracts:

S. No.

Description

Applicable GST Rate

 

 

 

 

 

 

 

 

1.

Composite supply of works contract supplied to the Central Government, 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 monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958);

·         canal, dam or other irrigation works;

·         pipeline, conduit or plant for water supply, water treatment, sewerage treatment or disposal

·         a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession

·         a structure meant predominantly for use as an educational, a clinical, or  an art or cultural establishment

·         a residential complex predominantly 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 such as Members of Parliament, Panchayats, other local authorities, etc.

Note:-This will also include composite supply of works contract provided by a sub-contractor to the main contractor in respect of abovementioned services to the Central Government, State Government, Union territory, a local authority, a Governmental Authority or a Government Entity.

 

12%

 

 

 

 

 

2.

Composite supply of works contract supplied by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of—

i) a road, bridge, tunnel, or terminal for road transportation for use by general public

ii) a civil structure or any other original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awas Yojana

iii) a civil structure or any other original works pertaining to the "In-situ redevelopment of existing slums using land as a resource, under the Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana (Urban)

iv) 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 Yojana

v) 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 Yojana (Urban)

vi) 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 (LIG)/Middle Income Group-1 (MIG-1)/Middle Income Group-2 (MIG-2)" under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (Urban)

vii) a pollution control or effluent treatment plant, except located as a part of a factory; or

viii) a structure meant for funeral, burial or cremation of deceased

ix) a building owned by an entity registered under section 12AA of the Income-tax Act, 1961 (43 of 1961), which is used for carrying out the activities of providing, centralised cooking or distribution, for mid-day meals under the mid-day meal scheme sponsored by the Central Government, State Government, Union territory or local authorities

 

12%

 

 

 

 

 

 

3.

Composite supply of works contract supplied by way of construction, erection, commissioning, or installation of original works pertaining to-

railways, including monorail and metro

i) a single residential unit otherwise than as a part of a residential complex

ii) low-cost houses up to a carpet area of 60 square metres per house in a housing project approved by competent authority empowered under the 'Scheme of Affordable Housing in Partnership' framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India

iii) low cost houses up to a carpet area of 60 square metres per house in a housing project approved by the competent authority under—

a) the "Affordable Housing in Partnership" component of the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana

b) any housing scheme of a State Government

iv) low-cost houses up to a carpet area of 60 square metres per house in an affordable housing project which has been given infrastructure status

v) post-harvest storage infrastructure for agricultural produce including a cold storage for such purposes

vi) mechanized food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages

12%

 

 

 

4.

Composite supply of works contract involving predominantly earth work (constituting more than 75 per cent of the value of the works contract) provided to the Central Government, State Government, Union territory, local authority, a Govern-mental Authority or a Government Entity. 

Note:-This will also include composite supply of works contract provided by a sub-contractor to the main contractor in respect of abovementioned services to the Central Government, State Government, Union territory, a local authority, a Governmental Authority or a Government Entity.

5%

 

 

5.

Composite supply of works contract and associated services, in respect of offshore works contract relating to oil and gas exploration and production (E&P) in the offshore area beyond 12 nautical miles from the nearest point of the appropriate base line.

12%

 

 

6.

Composite supply of works contract supplied by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of affordable residential apartments in a project which commences on or after 1st April, 2019, or in an ongoing project in respect of which the promoter has not exercised option to pay central tax on construction of apartments at the rates of 12% or 18%, as the case may be.

12%

 

ITC Availability for Works Contract:

ITC is not available on works contract services when supplied for construction of an immovable property except plant and machinery. However, ITC for works contract can be availed only by person who is in the same line of business and is using such services for further supply of works contract service.

For instance, a building developer may engage services of a sub-contractor for certain portion of the whole work. The sub-contractor will charge GST in the tax invoice raised on the main contractor. The main contractor will be entitled to take ITC on the tax invoice raised by sub-contractor as his output is works contract service. However, if the main contractor provides works contract services to a company engaged in the IT business, the ITC of GST paid on the invoice raised by the contractor will not be available to the IT Company.

Maintenance of Records:

Every registered person executing works contract is required to maintain separate accounts for works contract showing the following details :—

1. names and addresses of the persons on whose behalf the works contract is executed

2. description, value and quantity of goods or services

    a) received for the execution of works contract and

    b) utilized in the execution of works contract

3. details of payment received in respect of each works contract

4. names and addresses of suppliers from whom he received goods or services

Valuation of Works Contract:

Valuation of a works contract service depends on whether the contract includes transfer of property in land as a part of the works contract. In case of supply of service, involving transfer of property in land or undivided share of land, the value shall be:-

Value of supply of service and goods = Total amount charged for such supply (-) value of share of land or undivided share of land

Total amount will include consideration charged for the above service including amount charged for transfer of land.

Value of land shall be deemed to be one-third of the total amount charged for such supply.

Place of Supply under GST:

Works contracts under GST are related to immovable property. Where both supplier and recipient are located in India, the place of supply would be the location of immovable property.

In case the immovable property is located outside India and supplier as well as recipient are located in India, place of supply would be the location of recipient. Where either the supplier or recipient is located outside India, place of supply shall be the location of immovable property.

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:

1. When due date of payment is ascertainable from the contract: the invoice shall be issued on or before due date of payment.

2. 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.

3. When payment linked with completion of event, i.e., milestones: the invoice shall be issued on or before date of completion of that event.

Time of Supply:

No separate provision has been provided for time of supply for works contract which is treated as ‘continuous supply of services’. Time of supply for ‘continuous supply of services’ shall be determined as per general provision given to determine time of supply of service which will be earlier of:-

1. date when invoice is actually issued or required to be issued

2. date of receipt of payment