GST On Centage Income
This query is : Resolved
22 May 2025
ABC Limited is a government company with 100 percent shares owned by State Government. They provide supervison services for Construction of Roads, Bridges. For this they receive a certain percentage of the Civil Works as CENTAGE.
So basically what happens, A Contractor XYZ Ltd for the construction services raises a Tax Invoice in the name of ABC Ltd. Suppose for Rs 100 they raised a Tax Invoice and charged 18 percent GST on it and the total Invoice Values becomes 118. Now considering Rs 100 as the civil works value ABC Ltd books a centage Income of 8 Rupees in their books. This will be paid by the concerned road construction department. Now does ABC Ltd requires to pay GST on this 8 rupees i.e. Centage Income. If no, why? If yes, then can ITC of Rs 18 be claimed?
So basically what happens, A Contractor XYZ Ltd for the construction services raises a Tax Invoice in the name of ABC Ltd. Suppose for Rs 100 they raised a Tax Invoice and charged 18 percent GST on it and the total Invoice Values becomes 118. Now considering Rs 100 as the civil works value ABC Ltd books a centage Income of 8 Rupees in their books. This will be paid by the concerned road construction department. Now does ABC Ltd requires to pay GST on this 8 rupees i.e. Centage Income. If no, why? If yes, then can ITC of Rs 18 be claimed?
23 May 2025
1. Is GST payable on Centage Income? Yes.
Centage Charges (or supervision charges) are consideration for a service rendered by ABC Ltd (supervision/management of construction work).
As per Section 7(1)(a) of CGST Act, supply includes all forms of supply of services for a consideration in the course or furtherance of business.
ABC Ltd is providing a service to the Road Construction Department and receiving a fee for it (centage), which qualifies as a taxable supply under GST.
Even though ABC Ltd is a government company and 100% owned by the State Government, it is not exempt from GST unless a specific exemption applies — which is not the case for supervision services (centage).
Hence, GST is applicable on ₹8, and ABC Ltd is liable to charge and pay GST (likely at 18%, unless a concessional rate applies to their SAC).
2. Can ABC Ltd claim ITC of ₹18 paid to XYZ Ltd (the Contractor)?
Yes, provided the following conditions are met:
The supply of civil construction work (₹100 + ₹18 GST) by XYZ Ltd is used in the course or furtherance of ABC Ltd’s business (which it is — it’s linked to the centage service).
ABC Ltd receives a valid tax invoice.
The contractor has paid the tax and filed it in GSTR-1.
ABC Ltd pays the invoice amount (including GST) within 180 days.
So Input Tax Credit (ITC) of ₹18 can be claimed by ABC Ltd.
How the Flow Works:
Step Transaction Amount GST Impact
1 XYZ Ltd raises invoice on ABC Ltd ₹100 + ₹18 GST ABC Ltd pays ₹118 and can claim ₹18 as ITC
2 ABC Ltd supervises the project and raises centage charges (8%) on civil value ₹8 + GST (likely ₹1.44 @18%) ABC Ltd charges and pays GST on ₹8
3 Road Department pays ₹8 + GST to ABC Ltd ₹9.44 ABC Ltd earns income and remits GST, net of ITC
Centage Charges (or supervision charges) are consideration for a service rendered by ABC Ltd (supervision/management of construction work).
As per Section 7(1)(a) of CGST Act, supply includes all forms of supply of services for a consideration in the course or furtherance of business.
ABC Ltd is providing a service to the Road Construction Department and receiving a fee for it (centage), which qualifies as a taxable supply under GST.
Even though ABC Ltd is a government company and 100% owned by the State Government, it is not exempt from GST unless a specific exemption applies — which is not the case for supervision services (centage).
Hence, GST is applicable on ₹8, and ABC Ltd is liable to charge and pay GST (likely at 18%, unless a concessional rate applies to their SAC).
2. Can ABC Ltd claim ITC of ₹18 paid to XYZ Ltd (the Contractor)?
Yes, provided the following conditions are met:
The supply of civil construction work (₹100 + ₹18 GST) by XYZ Ltd is used in the course or furtherance of ABC Ltd’s business (which it is — it’s linked to the centage service).
ABC Ltd receives a valid tax invoice.
The contractor has paid the tax and filed it in GSTR-1.
ABC Ltd pays the invoice amount (including GST) within 180 days.
So Input Tax Credit (ITC) of ₹18 can be claimed by ABC Ltd.
How the Flow Works:
Step Transaction Amount GST Impact
1 XYZ Ltd raises invoice on ABC Ltd ₹100 + ₹18 GST ABC Ltd pays ₹118 and can claim ₹18 as ITC
2 ABC Ltd supervises the project and raises centage charges (8%) on civil value ₹8 + GST (likely ₹1.44 @18%) ABC Ltd charges and pays GST on ₹8
3 Road Department pays ₹8 + GST to ABC Ltd ₹9.44 ABC Ltd earns income and remits GST, net of ITC
23 May 2025
Thanks for the response.
If we have Rs 18 as ITC, then our output tax liability will always be less than ITC.
Can you please confirm the provisions behind this whether Whole 18 will be available or if any adjustments need to be done.
If we have Rs 18 as ITC, then our output tax liability will always be less than ITC.
Can you please confirm the provisions behind this whether Whole 18 will be available or if any adjustments need to be done.
23 May 2025
you can take Full ITC on Service Purchase and it should reflect in your GSTR-2B, and when you are billing then you will pay 18% GST. if you are billing nil rate or exempt then proportionate disallowance.
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