Work Contract under GST: Background of Works Contract Under GST. Definition of Works Contract, Input Tax credit, TDS provisions under CGST Act, Applicability.
“Works Contract” means a contract for building, construction, fabrication, completion,erection, installation, fitting out, improvement, modification, repair, maintenance, renovation,alteration or commissioning of any immovable property wherein transfer of property in goods(whether as goods or in some other form) is involved in the execution of such contract.
Work Contract under GST
Supply of Services
For GST law, works contract as defined above will be treated as a supply of service, thereby putting a closure to the deliberation on the methodology of segregating the works contract between goods and services.
Input Tax Credit
Input tax credit shall not be available in respect of the works contract services when supplied for construction of immovable property,(other than plant and machinery), except where it is an input service for further supply of works contract service.
ie credit of GST paid on works contract services will be allowed only if the output is also works contract services.
TDS Provisions under CGST Act
- Applicable to suppliers notified by the Central Government on recommendations of council.
- One standard rate viz. 1%
- (a) A department or establishment of the Central or State Government, or
- (b) Local authority, or
- (c) Governmental agencies, or
- (d) Such persons or category of persons as may be notified, by the Central or a State Government on the recommendations of the Council.
- One single certificate of deduction –cum-remittance to be furnished by the Deductor within five days of remittance.
- Under VAT Law If certificate of deduction alone is furnished by the Deductor, burden on the works contractor to prove deduction of tax at source. No such burden cast on the Deductee. More onus is on the Deductor.
- Refund provisions clear. Credit can also be claimed from the amount reflected in the Electronic Cash Ledger.
Person eligible for input tax credit
- Person providing works contract service and availing abatement under notification no.26/2012 shall be entitled to take credit of eligible duties and taxes on inputs held in stock and inputs contained in semi finished goods or finished goods held in stock on the date on which this provision is made effective.
Even if the construction contract or works contract is entered into prior to the date of introduction of GST, the contracts would be taxable under the GST Act.
Credit of VAT/Service Tax
Where tax was paid under both Value Added Tax Act and under Finance Act, 1994, viz., Construction service, works contract or supply of food/beverages, Tax shall be leviable under CGST Act on the supplies effected after the appointed day and the Value Added Tax or Service Tax shall be admitted as credit to the taxable person.
Eg: Contract entered in March, 2017 for Rs. 2,00,00,000/-. Advance received till 30th June, 2017 amounts to Rs. 10,00,000/-. Value Added Tax of Rs. 80,000/- and Service Tax of Rs. 1,20,000/-have been paid on the said advance. Assuming appointed day as 1st July, 2017 GST shall be levied on Rs. 2,00,00,000/- as per Sec 13 of the CGST Act. The value added tax and service tax paid shall be allowed as credit under the existing law in the manner as may be prescribed.
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