RCM 9(4) on Payment to Contractor who sends labourers
This query is : Resolved
Quick Summary
19 August 2025
Client a Builder/Developer doing Real estate project under JDA with Land owner.A contractor will send many labourers.Builder pays to contractor and deduct TDS under IT Act 194C.Contractor has no GST.
Will this payment to contractor needs to be considered in80:20ratio of mandatory requirement of purchase from regd dealer?
If 80% requirement failed, whether liable to RCM 9(4)?
How to structure to avoid RCM for this?
Will this payment to contractor needs to be considered in80:20ratio of mandatory requirement of purchase from regd dealer?
If 80% requirement failed, whether liable to RCM 9(4)?
How to structure to avoid RCM for this?
19 August 2025
If the builder fails to meet the 80% procurement requirement from registered suppliers, then GST is payable under the Reverse Charge Mechanism (RCM) by the promoter on the shortfall (i.e., to make up the 80%).
In this scenario, since the contractor is unregistered, and if payments to such contractors, along with other unregistered procurements, cause the builder’s total procurement from unregistered sources to exceed 20%, RCM will apply on the value of shortfall.
If the labour contractor’s supply is pure labour (no material), it may still be counted as an input service for the 80:20 calculation. But if total unregistered procurement is kept within 20%, there is no exposure to RCM.
If the 80% threshold is not met, GST is payable under RCM at the applicable rate on the value of shortfall purchases from unregistered suppliers.
There is no exemption from the 80:20 rule or RCM based solely on the nature of payment or presence of TDS deduction.
In this scenario, since the contractor is unregistered, and if payments to such contractors, along with other unregistered procurements, cause the builder’s total procurement from unregistered sources to exceed 20%, RCM will apply on the value of shortfall.
If the labour contractor’s supply is pure labour (no material), it may still be counted as an input service for the 80:20 calculation. But if total unregistered procurement is kept within 20%, there is no exposure to RCM.
If the 80% threshold is not met, GST is payable under RCM at the applicable rate on the value of shortfall purchases from unregistered suppliers.
There is no exemption from the 80:20 rule or RCM based solely on the nature of payment or presence of TDS deduction.
23 September 2025
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