Tax calculation for work contractors
This query is : Resolved
23 May 2018
I have a client who is registered under work contract service. is he eligible to claim the ITC on the goods which has purchased & used them during his work contract services. if it is possible then how can we claim it and pay the liability?
23 May 2018
Input tax credit shall not be available in respect of works contract services availed by a person for constructing an immovable property (other than Plant & Machinery) per section 17(5) of CGST Act.
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24 May 2018
IF WE PURCHASE ANY MATERIEL FROM UNREGISTERED DEALERS, THEN WOULD RCM APPLY OR NOT???
26 July 2025
Hey! Here’s a clear breakdown for your queries on **work contractors and Input Tax Credit (ITC)** under GST:
---
### 1. **Eligibility of ITC for Work Contract Services**
* As per **Section 17(5) of the CGST Act**, **input tax credit is *not* available** on goods or services used for **works contract services** when such services relate to **construction of immovable property** (except for Plant & Machinery).
* So if your client is a work contractor engaged in construction (like building houses, roads, etc.), **he cannot claim ITC on materials used** in such contracts.
---
### 2. **How to Claim ITC and Pay Liability (if ITC is available)**
* Since ITC on goods used in construction of immovable property is blocked, your client **cannot claim ITC on these goods**.
* The GST paid on such goods would be part of the cost of the contract and cannot be set off.
* Your client must pay GST on the total contract value (including cost of goods) and cannot reduce GST liability by claiming ITC on the goods.
---
### 3. **Regarding Purchase from Unregistered Dealers**
* If your client **purchases goods from unregistered dealers**, **Reverse Charge Mechanism (RCM) applies** only on specified categories of goods or services notified under GST rules.
* Generally, purchase of goods from unregistered dealers **does NOT attract RCM** (except a few specific goods notified by Government).
* For works contract services, if your client receives such services from an unregistered person and RCM is applicable as per the law, then your client must pay GST under RCM and can claim ITC accordingly (if eligible).
---
### Summary:
| Scenario | ITC Allowed? | Notes |
| --------------------------------------------------- | -------------------------------- | ---------------------------------------------- |
| Goods used in works contract for immovable property | **No** (Blocked under Sec 17(5)) | GST paid is cost component |
| Purchase from unregistered dealer (goods) | **No RCM generally** | RCM applicable only on notified goods/services |
| Services from unregistered persons under RCM | Yes, pay GST under RCM | Can claim ITC if eligible |
---
If you want, I can help you with GST payment and accounting entries for this. Want me to do that?
---
### 1. **Eligibility of ITC for Work Contract Services**
* As per **Section 17(5) of the CGST Act**, **input tax credit is *not* available** on goods or services used for **works contract services** when such services relate to **construction of immovable property** (except for Plant & Machinery).
* So if your client is a work contractor engaged in construction (like building houses, roads, etc.), **he cannot claim ITC on materials used** in such contracts.
---
### 2. **How to Claim ITC and Pay Liability (if ITC is available)**
* Since ITC on goods used in construction of immovable property is blocked, your client **cannot claim ITC on these goods**.
* The GST paid on such goods would be part of the cost of the contract and cannot be set off.
* Your client must pay GST on the total contract value (including cost of goods) and cannot reduce GST liability by claiming ITC on the goods.
---
### 3. **Regarding Purchase from Unregistered Dealers**
* If your client **purchases goods from unregistered dealers**, **Reverse Charge Mechanism (RCM) applies** only on specified categories of goods or services notified under GST rules.
* Generally, purchase of goods from unregistered dealers **does NOT attract RCM** (except a few specific goods notified by Government).
* For works contract services, if your client receives such services from an unregistered person and RCM is applicable as per the law, then your client must pay GST under RCM and can claim ITC accordingly (if eligible).
---
### Summary:
| Scenario | ITC Allowed? | Notes |
| --------------------------------------------------- | -------------------------------- | ---------------------------------------------- |
| Goods used in works contract for immovable property | **No** (Blocked under Sec 17(5)) | GST paid is cost component |
| Purchase from unregistered dealer (goods) | **No RCM generally** | RCM applicable only on notified goods/services |
| Services from unregistered persons under RCM | Yes, pay GST under RCM | Can claim ITC if eligible |
---
If you want, I can help you with GST payment and accounting entries for this. Want me to do that?
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