Work Contracts In GST

What is a works contract?

Works contract is essentially a contract of service which may also involve supply of goods in the execution of the contract. It is basically a composite supply of both services and goods, with the service element being dominant in the contract between parties.

In a general sense, a contract of works, may relate to both immovable and immovable property. E.g. if a sub-contractor, undertakes a sub-contract for the building work, it would be a works contract in relation to immovable property. Similarly, if a composite supply in relation to movable property such as fabrication/painting/annual maintenance contracts etc. is undertaken, the same would come within the ambit of the broad definition of a works contract.

Position under GST

Under GST laws, the definition of “Works Contract” has been restricted to any work undertaken for an “Immovable Property” unlike the existing VAT and Service Tax provisions where works contracts for movable properties were also considered.

Valuation

For the purpose of valuation of work contracts, “total amount” means the sum total of-

(a) consideration charged for aforesaid service; and

(b) amount charged for transfer of land or undivided share of land, as the case may be

Place of Supply in respect of Works Contract Works

Contract under GST would necessarily involve immovable property. In view of the same the place of supply would be governed by Section 12(3) of the IGST Act, 2017, where both the supplier and recipient are located in India. The place of supply would be where the immovable property is located.

In case the immovable property is located outside India, and the supplier as well as recipient both are located in India, the place of supply would be the location of recipient as per proviso to Section 12(3) of the IGST Act, 2017.

As per Section 13(4) of the IGST Act, 2017, in cases where either the Supplier or the Recipient are located outside India, the place of supply shall be the place where the immovable property is located or intended to be located.

Conclusion

A works contract is treated as supply of services under GST. Under the previous indirect taxes dispensation, there were issues in tax treatment of works contract. Both the Central Government (on the services component of a works contract) & the State Governments (on the sale of goods portion involved in the execution of a works contract) used to levy tax. Thus the same contract was subject to taxation by both Central and State Government. GST aims to put at rest the controversy by defining what will constitute a works contract (applicable for immovable property only), by stating that a works contract will constitute a supply of service and specifying a uniform rate of tax applicable on same value across India. Thus, under GST, taxation of works contract will be simpler and easier to administer.

Manish Sharma has given a great summary! Here’s a quick digest of key points on Works Contract under GST:

What is a Works Contract?

A works contract is essentially a composite supply involving both goods and services.
The service element is dominant.
It typically relates to immovable property (like building, construction, repair, maintenance of immovable property).
Earlier laws (VAT/Service Tax) included movable property too, but under GST, the definition is restricted only to immovable property.

Key Changes under GST

GST treats a works contract as a supply of services.
The tax is uniform and administered centrally under GST.
Previously, there were dual taxes — Central tax on service component and State VAT on goods — causing complexity.
GST simplifies this by taxing the entire contract as a service.

Valuation for Works Contract

Total amount includes:
- Consideration charged for services.
- Amount charged for transfer of land or undivided share of land (if applicable).

Place of Supply for Works Contract

When supplier and recipient are in India, place of supply is where the immovable property is located (Section 12(3) IGST Act).
If immovable property is outside India but both parties are in India, place of supply is where the recipient is located.
If supplier or recipient is outside India, place of supply is where the immovable property is located or intended to be located (Section 13(4) IGST Act).