Tax applicable object labour with material

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This query is : Resolved

Patel (Querist)

15 November 2014 my uncle is doing business of airconditioner selling and repairing he is raising labour with material invoice in such case how much tax he has to charge ?

MJ Krishnamurthy

MJ Krishnamurthy (Expert)

16 November 2014 In such a case VAT is to be charged on sale of components or spares and ST is to be charged on the service/labour charges....mjk

Message likes : 1 times

Patel

Patel (Querist)

22 November 2014 thank you sir,

he is charging 8% MVAT in labour+material invoices and nil service tax

he is saying it is not possible for him to segregate labour and material

kindly let me know what he is doing is correct ?

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

26 July 2025 Got it! Here’s a clear breakdown:

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### Scenario: Airconditioner repair — labour + material billed together

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### Tax applicability:

* **Material (spares/parts sold)** → **VAT (or now GST on goods)**
* **Labour/Service charges (repair service)** → **Service Tax (pre-GST) or GST on services**

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### What your uncle is doing:

* Charging **8% MVAT on the entire invoice amount** (labour + material)
* **Not charging any service tax**

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### Is this correct?

* **No**, strictly speaking this is **not correct** under the tax laws *before GST*.

* VAT should be charged **only on the material/spares part**.
* Service tax should be charged **only on the labour/repair service portion**.

* However, if he is **unable to segregate labour and material**, sometimes tax authorities allow taxing the **entire invoice under VAT**, but this is not strictly correct and may cause issues.

* Also, VAT on labour (service part) is not correct since labour is not goods.

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### What should be done ideally?

* Maintain proper breakup of **labour and material charges** on invoices.
* Charge:

* **VAT @ applicable rate (like 8% or state-specific) on material cost**
* **Service Tax (or GST on services) on labour charges**

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### Post GST scenario:

* Both goods and services are covered under GST.
* GST will apply on **total invoice** but rates may differ for goods and services.
* Generally, GST is charged on the full invoice with applicable rates.

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### Summary:

| Your uncle’s approach | Correct approach |
| ----------------------------------- | -------------------------------------- |
| 8% VAT on total (labour + material) | VAT on material, Service tax on labour |
| No segregation | Segregate labour and material charges |

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If segregation is difficult, better to consult a tax expert or check if your state tax department allows taxing the entire amount under VAT for simplicity—but it’s a bit risky.

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Want me to help draft an invoice format that properly segregates labour and material for compliance?

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