pure labour under construction contract gst, Goods and Services Tax - GST

[tarun verma]

sir please explain concept of pure labour under construction contract under gst regime...

if individual involve in construction service and hire labour from market on daily basis..pay daily wages to them ..

gst liabillity on the individual...

please guide me on this topic...

Posts / Replies

[KASTURI SETHI]

Exempted vide notification no.12/17-Central Tax Rate dated 28.6.17 Serial No.11 Heading No.9954.

[GOKARNESAN.S SUBRAMANIAN]

Mr. Tarun Varma

You have stated that an individual involve construction service. But you have not specify whether the individual is rendering pure labour contract only in the construction activity. In other words, materials supplied by the receiver and the individual undertake only labour work by getting hired daily labour or not. Further, you have also not mentioned whether the individual is doing service for one dwelling unit or multiple units (flats) ?

If the individual is doing the entire construction work (Other than single dwelling unit) for others by deploying his own materials such as cement, steel, sand and other materials with hired labour from outside, then such individual has to be classified as "Construction Service provider under WORKS CONTRACT Classification " and he has to discharge GST liability at 18% on the entire value with full INPUT GST CREDIT on goods and inpur services.

Exemption is given only for two circumstances as detailed in the table - only for pure labour contract

10	Heading 9954	Services provided by way of pure labour contracts of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a civil structure or any other original works pertaining to the beneficiary-led individual house construction or enhancement under the Housing for All (Urban) Mission or Pradhan Mantri Awas Yojana.	Nil	Nil
11	Heading 9954	Services by way of pure labour contracts of construction, erection, commissioning, or installation of original works pertaining to a single residential unit otherwise than as a part of a residential complex.

As such, the above exemption under serial number 11 is not applicable to you if the individual does

a) construction work as a whole including labour

b)if such construction involve multiple units (more than one dwelling unit)

On the other hand, if the individual does only pure labour contract in the construction activity then he is entitled to exemption subject to conditions stipulated in serial number 11 of the table.

FOR ENGAGING LABOUR FROM

The labour hired from outside are to be treated as "Un-registered persons under GST". Hence, the GST liability on the value of labour paid lies on the service receiver under reverse charge. Again if the individual contractor undertakes the entire construction contract (material with labour), then he will be treated as 'business entity" and as such, the contractor is liable to pay GST under reverse charge and he may eligible to take the tax paid as input tax credit.

I request Experts may give your views and comments on the above

regards

S. Gokarnesan

Advocate, Chennai

98400 87349

[tarun verma]

thanks to sir. Gonkarnesen Subramanian for wonderfull answer..

there are some queries arose after your answer,please address those queries .

a) As you stated individual under take construction contract( material + labour ) , he will discharge liability @18% with taking input tax credit on goods and services.this activity amount to work contract..and in case of work contract no ITC available.because emerging property is immovable.?

b) If individual contractor provide service with pure labour and material supply by service reciver in that case.only original work related to single residence get exempted..not being multi residence

c) is there is exemption limit on service receive from unregistered person ...like in goods limit is 5000 per day

d) in case of rcm liability to pay tax on contractor ,not on service receiver

[GOKARNESAN.S SUBRAMANIAN]

Mr. Tarun Verma

I answer your queries:

Query: a) As you stated individual under take construction contract( material + labour ) , he will discharge liability @18% with taking input tax credit on goods and services.this activity amount to work contract..and in case of work contract no ITC available.because emerging property is immovable.?

My Answer:-

As a contractor, doing a works contract service - construction service to your customer, you are entitled to take credit of GST involved on goods and services consumed to do the said output supply namely ' works contract;. Full credit is eligible on goods and services.

On the other hand, for the customer who avails the 'works contract construction service' from you , whatever GST paid by you as a contractor in your invoice to your customer. The works contract service rendered by you is not an eligible input service credit to your customer in terms of Section 17(5)(c) of CGST Act.,2017.

Query -b) If individual contractor provide service with pure labour and material supply by service reciver in that case.only original work related to single residence get exempted..not being multi residence

My Answer is - YES

Query -c) is there is exemption limit on service receive from unregistered person ...like in goods limit is 5000 per day.

My Answer is :

As per Notification No.8/2017 Central Tax (Rate), dated 28.6.2017, this exemption limit of ₹ 5000/- per day is applicable to both goods and services received from un registered dealers subject to the proviso contained in the said notification (provided that the said exemption shall not be applicable where the aggregate value of such supplies of goods or service or both received by a registered person from any or all the suppliers, who is or are not registered, exceeds Five thousand rupees)

Hence, you have to see the aggreagate value of supply, service or both in a single day from all suppliers to decide the eligibility within ₹ 5000/-

Query -d) in case of rcm liability to pay tax on contractor ,not on service receiver

Answer: This query is not clear. However, the RCM liability on the service receiver . In your example: the contractor received the service of manpower (un registered dealers) and utilise in his works contract service. Hence, the contractor is liable to discharge tax under reverse charge and after making payment, he can take credit as input tax credit of such amount. As far as the availment of manpower services by the contractor, he is the service receiver and not the person to whom the contractor render construction services.

S. Gokarnesan

Advocate

[tarun verma]

thanks to sir. Gonkarnesen Subramanian for answered my queries..

a) The labour hired from outside are to be treated as "Un-registered persons under GST". Hence, the GST liability on the value of labour paid lies on the service receiver under reverse charge. Again if the individual contractor undertakes the entire construction contract (material with labour), then he will be treated as 'business entity" and as such, the contractor is liable to pay GST under reverse charge and he may eligible to take the tax paid as input tax credit.

from the above address my some addtioinal queries

a) if the contractor hire labour and get service from labours ( labour are unregd. person ) so the libility to pay tax under RCM lies on Contractor and he will utilised ITC for discharge liabilites.here contarctor engage in construction of multi residence. and only engage in pure labour contract.

b) the exemption limit is to be benefit for the small contractor where he used service of labour less than 5000 per day for example 10 labour @ 500 per day amounts to 5000 per day..so he will not cover under RCM.

[tarun verma]

under gst if construction contractor cover under RCM by getting service from labour ( i.e unregistered ) so he will have to get registration under gst, irrespective of thereshold limit ( 20 lakhs.)

[MELVIN KOSHY]

Assume a Contractor who is quoting for a Govt. Dept Work.
An illustration on arriving at final rate of an item by a Contractor for an item to be quoted in price bid is as follows
BASIC PRICE (A)
Subtract DISCOUNT (B)
Add TRANSPORTATION (C)
Add PROFIT (D)
Add GST at 18% on (A+B+C+D) = (E)
TOTAL (F) = A+B+C+D+E
Amount quoted by Contractor in price bid = F
As we know, Govt. Dept will incur 12% towards GST on Works Contract offered by the Contractor. Whether Contractor will add 12% to the above value (F) and put his quote in the price bid?
Please give your thoughts

[vinodh raj]

Sir,

I have doubt.

My friend was pure labour work for breaking on stone. he as team work and get the amount . GST Applicable ah?