What are the GST on Construction Work? GST on Infrastructure Repairing Works or Work Contracts
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What are the GST on Construction Work? GST on Infrastructure Repairing Works or Work Contracts
A works contract is primarily a service contract with the possibility of item supply as part of the contract’s execution. A works contract, by definition, is a formal agreement to do work or other obligations in exchange for money, such as construction, installation, modification, repairs, maintenance, or renovation of any immovable property.
A subcontract for building work done by a subcontractor, for example, would be a works contract for immovable property. Painting or annual maintenance contracts, for example, would fall under the broad definition of a works contract. As a result, a works contract is fundamentally a provision of both products and services, with the service portion of the contract between two parties taking precedence.
GST on Construction Work : Work Contract under GST
Unlike the VAT and Service Tax laws, which evaluate work contracts for movable properties, the GST regulations define “work contract” as any job or work done on any “immovable property”.
A works contract entails transferring property in goods or other forms as part of the contract’s execution, according to Section 2 subsection (119) of the Central Goods and Services Tax (CGST).
In terms of GST, the works contract has been limited to construction, manufacturing, and other aspects of any immovable property. The works contract category does not cover fabrication or paintwork in an automobile body shop, according to the GST rules. As a result, these contracts will be classified as mixed supply contracts for goods/commodities, rather than works contracts.
When a works contract has been detailed, such as the construction of a building, civil structure, complex, or component, Schedule II describes how “Supply of Service” will be handled. It could also include details on a complex or structure that is for sale to a buyer, in whole or in part, with proof of completion or a completion certificate. Because the supply has become immovable property, and GST cannot be charged on the sale of immovable property, there is no works contract GST rate in this scenario of construction. The decision to treat works contracts as a service rather than a delivery of products has brought much-needed clarity to the rate of GST on construction works contracts.
Rate of GST on Construction Work Contracts
GST rates on various types of works contracts were defined in the notification for GST Rates issued on June 28, 2017, depending on the kind of works contract and the service receiver and provider.
For services provided under a Works contract, two GST rates have been established: 18% and 12%. The following are the rates of GST on construction work.
Construction or repair services provided to the government in the form of:
| Construction or repair of Canals, dams, water supply, sewage treatment related work | 18% |
| Construction or repair of Nationally significant historical monuments & historical sites etc | 18% |
| Oil exploration related works contract. | 18% |
| Works contract awarded to the subcontractor by the main contractor for the work, who provides the above mentioned services to the government. | 12% |
| A road, hiwhway, bridge, culvert, canal, or terminal for public use in road transportation. | 12% |
GST on Construction Work Contract – Input Tax Credit
In comparison to the former indirect tax regime, the mechanism for claiming Input Tax Credit in GST is much more comprehensive. Eliminating the cascading impact by permitting the seamless flow of credit is one of the most significant benefits expected from the GST Act’s implementation. No input tax credit will be granted for works contract services provided for the construction of immovable property unless it is an input service for the subsequent supply of works contract, according to Section 17(5)(c) of the CGST Act, 2017.
Allowing the purchasing dealer to collect ITC for GST paid by the providing dealer ensures a continual flow of tax credits under GST. An Integrated Goods & Services Tax (IGST), Central Goods and Services Tax (CGST), or State Goods and Services Tax (SGST) credit is a tax credit applied to any supply of goods or services. A registered taxpayer is allowed to claim ITC that has been credited to the e-credit ledger, subject to the conditions listed, and there are no limitations on how much ITC they can claim.
When given to construct an immovable asset, the beneficiary of works contract services cannot claim Input Tax Credit unless it is an input service for the later delivery of works contract. ABC Contractors, for example, is building an immovable property. Because of the nature of the property, they are unable to claim an ITC on the works contract. PQR Contractors, on the other hand, is hired by ABC for a portion of the work contract. ABC might claim ITC on the GST charged by PQR Contractors in this scenario.
GST on Construction Work : Keeping Records for a Construction Project Work Contract
According to the CGST Act of 2017, anyone who is registered to execute a works contract must keep track of the following information:
Information about the contractor or the people on whose behalf the construction contract is being carried out.
Payments received for the construction work contract
Names and addresses of suppliers from whom he obtained goods or services; description, value, and volume of goods or services received or used in the performance of the works contract.
Maintaining these records can aid in the resolution of any future disputes over the works contract. It can help with legal requirements and retain a proper record of completed job.
GST on Construction Work : Contractual standards for practical work
From the standpoint of a business entity, below are the guidelines for a works contract:
The applicable accounting package’s tax code marking has to be changed.
The tax code for ITC and non-ITC works must be segregated in order to capture claims for ITC cases.
The vendor master must record the Goods and Services Tax Identification Number (GSTIN), and its synchronization with the Contractor’s address must be confirmed.
The accuracy of your GSTIN can be checked on the GST portal (www.gst.gov.in) under the “Search Taxpayer Tab.”
The GSTIN that the party provides must be displayed in the site.
All necessary invoice fields on the Contractor’s invoice must be authenticated.
All contracts involving commodities or services related to immovable property must be classified as services and brought within the scope of works contracts.
Contractors must now be conversant with system-driven data management and financing because all GST activities, including as registration, returns, and refunds, are carried out via an IT-enabled platform.
What are the services that covered under the works contract
- Building Work
- Construction Work
- Fabrication Work
- Completion Work
- Erection Work
- Installation Work
- Fitting Out Work
- Improvement Work
- Modification Work
- Repair Work
- Maintenance Work
- Renovation Work
- Alteration Work
- Commissioning Work