GST RATE ON WORKS CONTRACT SERVICES

GST council in its 47th Council meeting has recommended for rate increase to 18% for all Government works which was followed by issuance of Notification No. 03/2022-C.T (R) dated 13.07.2022.

Works contract involving construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of following rendered to Government or Local authority are earlier taxed at 12% and now increased to 18%

Historical monuments, archaeological site or remains of national importance, archaeological excavation, or antiquity

Canals, dams or other irrigation works

Pipelines, conduit or plants for water supply, water treatment or sewerage treatment or disposal

Civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;

a structure meant predominantly for use as (i) an educational, (ii) a clinical, or(iii) an art or cultural establishment; or

a residential complex predominantly meant for self-use or the use of their employees or other persons (MP’s, MLA’s etc.,)
 

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GST Law mentions that input tax credit is not available for-

• works contracts services when supplied for construction of immovable property, other than plant and machinery, except where it is an input service for further supply of works contract service.
• goods or services received by a taxable person for construction of an immovable property on his own account, other than plant and machinery, even when used in course or furtherance of business.

Input tax credit is available to both a builder and a taxable person while constructing plant and machinery. But input tax credit is not available to any taxable person who constructs on his own account even if it is for business use. 

As a result, ITC for works contract can only be obtained by someone who is in the same line of business as them and is using the services they have received to supply more works contract services. A building developer, for example, may hire a subcontractor to complete a section of the project. In the tax invoice sent to the principal contractor, the subcontractor will charge GST.

Because his output is a works contract service, the main contractor will be able to claim ITC on the tax invoice raised by his subcontractor. However, if the primary contractor supplies a company in the IT industry with a works contract service (other than plant and machinery), the ITC of GST paid on the invoice created by the works contractor will not be available to the IT company.