GST on Labour Charges 2025: Rates, HSN Code & Exemptions

Harish Varun

19 March 2025

78,986 4 minutes read

Get GST Insights on labour charges, contracts & HSN codes. Stay ahead with Vakilsearch's expert led guide on exemptions and tax credits on labour services.

GST on labour services depends on the type of work and industry. Most labour services fall under 18% GST (HSN Code 9985), covering general job work, repair, and maintenance. Construction-related labour (HSN Code 9954) may qualify for 0% GST if linked to government schemes or affordable housing projects. Similarly, agriculture-related labour (HSN Code 9986) is fully exempt.

For certain services, the Reverse Charge Mechanism (RCM) applies, shifting the GST payment responsibility from the service provider to the recipient. Businesses can claim Input Tax Credit (ITC) on labour charges if used for taxable business activities, but ITC is restricted for personal use, exempt supplies, and self-constructed properties.

In this blog, we will explain GST rates, exemptions, ITC eligibility for labour services, and RCM rules to help businesses stay compliant.

What is the GST on Labour Charges?

Labour services in India generally attract 18% GST. However, certain services, such as pure labor for construction under government schemes or affordable housing projects, are GST exempt. Below is a table of applicable GST rates for labor services:

Service Category	GST Rate	HSN Code
Construction services under government schemes	0%	9954
Contract labor for other general services	18%	9985
Services related to agriculture or irrigation	0%	9986

Having a clear understanding of theseGST rates ensures compliance and clarity in the taxation of labor-related services.

What is the GST Registration Limit for Labour Contractors?

Labour contractors must register for GST if their turnover exceeds ₹20 lakh. Most contracts attract an 18% GST rate. Contractors can claim input tax credits on related expenses to reduce tax liability.

Also Read: List of Exempted Goods & Services 2025

Step By Step Guide To Calculate Labour Charges GST

Identify the GST rate: Labour services generally attract 18% GST, unless exempt.
Determine the taxable value: Calculate the total value of labor services provided.
Apply the GST formula:

GST Amount=Taxable Value×100/GST Rate

Example: If the labor charges are ₹50,000 and GST is 18%, the calculation will be:
GST Amount=50,000×18100=₹9,000\text{GST Amount} = 50,000 \times \frac{18}{100} = ₹9,000GST Amount=50,000×10018=₹9,000

Add GST to the taxable value: Total = Taxable Value + GST Amount.
In this case, ₹50,000 + ₹9,000 = ₹59,000.

GST Exemption on Labour Services

Certain labour services are GST exempt, including:

Pure labour services for construction under government or local authority projects (e.g., affordable housing schemes).
Labour services related to education and healthcare institutions.
Services for agricultural operations, such as irrigation or land preparation.
Construction services under projects funded by government welfare programs.

These exemptions aim to support essential sectors and reduce the tax burden on critical public services.

Labour Services With 0% GST

Below is a table of labour services with 0% GST:

Service Category	GST Rate	HSN Code
Construction services under government schemes	0%	9954
Contract labor for other general services	18%	9985
Services related to agriculture or irrigation	0%	9986

These exemptions apply to essential and public welfare-oriented services, ensuring affordability and accessibility. For hassle-free compliance, businesses in the transport sector can GST apply online and stay tax-ready.

Pre & Post Labour Charges GST Changes

The implementation of GST brought uniformity to the taxation of labour services, replacing multiple taxes like service tax and VAT. Before GST, labour services were taxed differently depending on the state or service category, leading to inconsistencies. Post-GST, a standard rate of 18% applies to most labour services, with specific exemptions for essential sectors.

Aspect	Pre-GST	Post-GST
Tax Structure	Service Tax/VAT varied by state	Uniform GST at 18%
Exemptions	Limited exemptions	Broader exemptions for welfare projects
Compliance	Complex, multi-tax system	Simplified single tax regime

Reverse Charge Mechanism (RCM) on Labour Charges

The Reverse Charge Mechanism (RCM) shifts the GST payment responsibility from the labour service provider to the recipient of services. This applies when labour is sourced from unregistered suppliers or falls under specific RCM notifications issued by the government.

When Does RCM Apply to Labour Services?

RCM applies to labour services in the following cases:

Government Contracts: Labour services for public infrastructure, road construction, and municipal projects.
Manpower Supply Services: When businesses hire workers through agencies, RCM applies.
Security Services: Hiring security personnel, guards, or surveillance staff through third-party agencies.
Works Contract Services: If the contractor is unregistered, the service recipient must pay GST.

Who Pays GST Under RCM?

Under RCM, the recipient bears the GST liability instead of the supplier, ensuring compliance and ITC eligibility.

The recipient of labour services (business, government, or institution) is responsible for GST payment instead of the supplier.
Input Tax Credit (ITC) can be claimed on GST paid under RCM, subject to eligibility and compliance with GST laws.

Examples of RCM in Government Contracts

RCM applies to various government contracts where the recipient is liable to pay GST instead of the supplier.

Construction & Infrastructure Projects: GST is applicable under RCM for roadwork, bridges, and public buildings.
Municipal & Cleaning Services: Local government bodies hiring sanitation workers from unregistered contractors must pay GST.
Security Services for Government Institutions: If the government outsources security services, RCM applies, and the government entity must pay GST.

Input Tax Credit (ITC) on Labour Charges

Businesses can claim input tax credit (ITC) on GST paid for labour services if these services are used for taxable business activities. However, ITC is restricted in certain cases, such as personal use or exempt supplies.

When Is ITC Allowed on Labour Charges?

Businesses can claim ITC if:

Labour services are used in manufacturing, production, or maintenance.
Works contracts involve resale or further supply of goods/services.
Manpower is hired for taxable business operations like logistics, repairs, or factory work.

When Is ITC Not Allowed?

ITC cannot be claimed if:

Labour charges are for constructing offices, warehouses, or showrooms for self-use.
Services are used for personal or exempt activities.
Labour services fall under the Reverse Charge Mechanism (RCM), unless conditions for ITC eligibility are met.

FAQs About GST on Labour Charges

What is the GST rate on labour charges?

The GST rate on labour services is generally 18% (HSN Code 9985). However, job work services may attract 12% GST, and certain construction-related or transport services fall under 5% GST. Exempted services, like agricultural labour (HSN Code 9986) and government welfare projects (HSN Code 9954), are taxed at 0% GST.

Is GST applicable to works contracts?

Yes, works contract services are taxable under GST. If the contract involves construction, repair, or installation of immovable property, it attracts 18% GST (HSN Code 9954). However, if it is for a government housing project or public welfare scheme, it may qualify for a 0% GST exemption.

What is the HSN code for labor charges?

The HSN code for labor charges depends on the type of service. For construction services, it is 9954, while general labor services are classified under 9985 or 9986 for agriculture-related services.

Is GST on labour charges 12% or 18%?

GST on labour charges is generally 18%, except for exempt services such as pure labor for government housing schemes or agriculture-related services, which attract 0% GST. The 12% rate is not applicable to labor charges.

Is GST applicable on manpower supply services?

Yes, manpower supply services attract 18% GST (HSN Code 9985). If provided under a government contract, RCM applies, making the recipient responsible for GST payment.

Are labour services for agriculture GST-exempt?

Yes, labour services related to agriculture, irrigation, or land preparation (HSN Code 9986) are exempt from GST to support the farming sector.