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GST

GST on Works Contract

The article makes the readers understand the processing intricacies related to GST on Works Contract.

Introduction to GST on Works Contract

In revenue and GST, there is a specific term known as GST on works contracts. As per the active and functioning parts of the GST law, you must understand what the word ‘works contract’ actually means. It indicates any work that is undertaken related to any immovable property.

At the same time, it is very different from value-added tax (VAT) and the service tax provisions as part of which movable properties were also made a part.

Under the CGST Act, 2017, you can check the current definition once, which says that a works contract primarily includes any contract made for building making, constructing an architectural structure, the completion, step-by-step fabrication, fitting, etc., fact.

At the same time, it includes any alteration or modification, maintenance, and renovation of the existing structure. In addition, it also includes any new commissioning or transfer of any immovable property in goods (or in some other form) that is included as part of the contract.  

Thus, it is important to understand that this whole act applies to the immovable property only. However, certain things like paint job completion as part of the automotive body should not be taken under the works contract, especially under GST. In addition, as per para 6 (a) of the Schedule that is thee in the CGST Act of 2017, the works contract, which is broadly categorized under section 2 (119), must be treated as equivalent to the supply of services. Let us take a suitable example to elaborate on this fact. 

 Suppose there is a building construction promoter, and he or she may allocate some part of the work to the sub-contractor. What happens? The sub-contractor will then charge the GST Invoice amount as part of the tax invoice getting processed under the domain of the chief construction specialist.

The main promoter will have the right to take the ITC on this tax invoice given by the sub-contractor because this output is similar to his own works contract service. 

There can be an alternative to this arrangement. Such a document says, if there is a decision by the chief contractor to any company, say as part of the IT business, then the ITC under GST that is paid as part of the invoice will not be made available for the IT company. 

Hence, before you sign the works contract, you should check out the relevant details about GST exemption on Work Contract and the works contract. 

What Constitutes a Works Contract under GST? What about the Immovable Property under It?   

When you go for decoding the various types of immovable property constituted under GST, you see that there is no specific definition that we get about it as part of the GST law itself. However, if you go to the General Clause Act 1897, in that case, immovable property constitutes land, any type of beneficial or profitable aspect of the land, things that are fabricated on the earth segment, or else it can be anything that is also tied up to the earth.

Buildings can be an example, there can be lights, hereditary or ancestral property, ferry land, fishery, harbour etc., but the infrastructure components should not include natural land. Attached to the earth, like weeds and shrubs, should not be there. The name suggests how the property is tied to the ground for any type of immovable property. It should not be uprooted, and it cannot be separated, detached, or taken away, like a railway platform. 

There is always a notification about the works contract, and the tax rates remain to be applicable:  

Please note the following points in connection to the above:

There are tax rates and notifications about the work contract for the new projects and those that have already started. Generally, if you take care of the tax rate for the works contract, you will see that it is available in serial no. 3 of the Notification no: 11/2017- the Central Tax Rate.

Some of the available examples of rates can be seen in the table below:

  • Tax rates include taking into consideration affordable building construction by any promoter as mentioned in the repo rate of a nodal body such as the Reserve Bank Of India (RREP)
  • Tax rates are not provided for any type of building that does not fall under the category of affordable constructions by any promoter, as mentioned in the repo rate of the Reserve Bank Of India (RREP)
  • Tax rates are different for shops, godowns and commercial buildings, for that matter of fact. The rates are per norms. 
  • However, tax rates can vary in accordance with Government policies and regulations.

GST interest calculator lets you calculate how much GST you will have to pay when you register for GST in India.

Tax Rates on Properties: Does It Vary Following Locations?

You should also learn a little about the place of supply that is necessary for this direction. In the case of India, there is a provision that the recipient, as well as the supplier, should be located in India itself. The place of location obviously indicates where the type of immovable property is actually located.

If the location of the immovable property is outside the country, then also, the place of supply should be the exact location where the recipient lives. In case both the recipient and the supplier are located outside India. The place of supply should constitute the actual locale where the immovable property is set up or located. 

Checklist You Should Take Care  While You Go For GST on Work Contracts:-

According to experts, if you are eligible to pay GST on the immovable property, you may need to:

  • Check if there is any form of exemption.
  • Find out more about tax codes, the vendor and the master details, the TDS applicability and procedure, and the composition scheme.
  • Find out more about the address of the contractor. 

Industry experts suggest that you go to Government sites to get updated information regarding current property-based tax rates.

Conclusion:-

In a competitive market, laws are getting revised, new work contracts are coming up, and new buildings are set up as part of the market. So you have to know more about GST and the types of work contracts available, and how you can derive major benefits from them. You should have a sound concept of the structure and the overall implication of GST law and how it contributes efficiently to the public treasury. 

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