Service tax to be charged on works contract

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Rakesh Bandal (Querist)
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19 June 2014 Dear Sir/ Madam,
I am providing works contract service of POP and electrical fitting work to builder who is constructing new building for residential purpose.
My question is that what is the rate of abatement on works contract service provided by me

Arun Kumar Singh

Arun Kumar Singh (Expert)
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19 June 2014 There is no abatement in your services but under the reverse charge system you need to pay service tax on the value of 50% vide notification no. 30/2012-ST.

Rakesh Bandal

Rakesh Bandal (Querist)
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19 June 2014 But sir as per Works contract service there is abatement for contractor who get contract with material
Abatement of 40% for original work
Abatement of 70% repairing work
Abatement of 60% for finishing , electrical fitting etc.

sir if i am wrong please correct me

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)
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25 July 2025 You're right to mention abatements, but let's clarify how they apply to works contract services:

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### Works Contract Service — Abatement and Reverse Charge:

1. **Abatement under Notification No. 1/2006-ST:**

* **For works contract service**, abatements are provided based on the nature of the work:

* **Original works (like new construction)** — **40% abatement** (i.e., taxable value = 60% of contract value)
* **Repair, reconditioning, restoration, maintenance, renewal or alteration of any goods** — **70% abatement**
* **Finishing, fitting out, interior decoration, installation of electrical fittings and other services mentioned** — **60% abatement**

This means the **taxable value on which service tax is paid is reduced accordingly**.

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2. **Reverse Charge Applicability (Notification No. 30/2012-ST):**

* If you are a **contractor providing works contract service to a builder, developer, or similar category of service receiver**, reverse charge provisions apply.
* Under reverse charge, **service receiver (builder/developer) is liable to pay service tax on 50% of the value of the service**, and contractor pays on remaining 50%.
* **Abatement is applicable before calculating tax on your portion (contractor's share)**.

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### To sum up for your case (POP and electrical fitting works):

* Since electrical fitting falls under finishing/fitting out, **abatement is 60%** (taxable value = 40% of contract amount).
* You pay service tax on 50% of that taxable value (your share).
* The builder pays service tax on the other 50% (reverse charge).

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### Example Calculation:

| Particulars | Amount (Rs.) | Explanation |
| ------------------------------- | ------------ | ----------------------------------------------- |
| Contract Value | 1,00,000 | Total contract price |
| Abatement (60%) | 60,000 | Deducted from contract value |
| Taxable value (40% of contract) | 40,000 | Value on which ST applies |
| Service tax rate (say 14%) | 5,600 | 14% on taxable value |
| Contractor's share (50%) | 20,000 | Taxable value for contractor |
| Tax payable by contractor (14%) | 2,800 | Contractor pays 14% on 20,000 |
| Builder's share (50%) | 20,000 | Taxable value for builder |
| Tax payable by builder (14%) | 2,800 | Builder pays 14% on 20,000 under reverse charge |

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**So, your abatement depends on the nature of your work, and reverse charge means the builder pays half the service tax directly to the government.**

If you want, I can share the exact notifications and sections for your reference. Would that help?

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