In the dynamic landscape of taxation, the Goods and Services Tax (GST) has been a game-changer in simplifying the indirect tax system in India. One of the areas that have garnered attention and sometimes confusion is the application of GST on Labour charges. Understanding the appropriate Harmonized System of Nomenclature (HSN) codes for Labour services is essential for both service providers and recipients to ensure compliance and accurate taxation. In this blog, we will delve into the intricacies of GST on Labour Charges HSN Code.
GST on Labour Charges: An Overview
GST, introduced in 2017, is a comprehensive indirect tax levied on the supply of goods and services. When it comes to Labour charges, GST is applicable based on the nature of the service provided and the appropriate HSN code. Labour charges can encompass a wide array of services, including but not limited to construction, repair, maintenance, installation, and more. The classification of these services is determined by HSN codes.
HSN Codes and Their Significance
HSN codes are a globally accepted system for classifying goods and services. In the context of GST, they play a pivotal role in identifying the category of services and goods for taxation purposes. Each HSN code corresponds to a particular type of service, making it easier for tax authorities to determine the applicable tax rate.
HSN codes are vital for labour charges as they help differentiate between services with varying tax rates. Using the correct HSN code ensures that the correct GST rate is applied, thereby preventing unnecessary disputes and potential penalties. Service providers must accurately determine the appropriate HSN code for the labour services they offer, while recipients should ensure the code aligns with the service they are receiving.
Understanding HSN Code for Labour Charges
Determining the correct Labour HSN code for a particular service can sometimes be complex. The HSN code applicable to labour charges is typically provided by the Central Board of Indirect Taxes and Customs (CBIC). Service providers need to refer to this code list to identify the relevant code for their specific service.
Let’s consider an example: If a business is offering repair and maintenance services for electronic appliances, they would need to ascertain the appropriate HSN code for such services. Misclassifying the service could result in incorrect taxation and potential legal repercussions. Therefore, it’s crucial to be diligent in determining the accurate HSN code.
Kinds of Labour contract
There are mainly two types of labour contracts:
An Agreement exclusively involving labour services.
Under GST, such a contract is termed as a pure labour contract. The supplier of service should not use any material in providing the service.
An Agreement involving labor and Materials.
Such a contract is termed a works contract as defined under section 2(119) of the CGST Act, 2017. It is a composite supply of both services and goods wherein the service part is the governing element in the contract between two parties.
Also Read: Understanding Utilization Of Input Tax Credit (ITC) In GSTR-3B
What is the GST rate with the HSN code on Labour charges?
| Service Accounting code | Nature of service | GST rate for labour charges |
| 998511 | Executive/retained personnel search services | 18% |
| 998512 | Permanent placement services | 18% |
| 998513 | Contract Staffing Services | 18% |
| 998515 | Long-Term staffing or payroll services | 18% |
| 998516 | Temporary staffing-to-permanent placement services | 18% |
| 998517 | Co-employment staffing services | 18% |
| 998518 | Other employment and labour supply services are nowhere else classified | 18% |
GST on the Import of Labour
Labour contractor registered under GST:
If the supplier agency is registered under GST, the agency should charge GST for labour supply. It can also claim the input tax credit for the same.
The Labour contractor is not registered under GST.
The service receiver should charge GST under the reverse charge mechanism if the supplying agency is not registered under GST.
Exemptions available on labour charges
Below services of the pure labour contract are exempt from GST as per Notification no.12/2017 dated 28th June 2017:
- Services of construction/erection/commissioning or installation of original works related to a ‘single residential unit otherwise than as a part of a residential complex.
- Services of construction/erection/commissioning /installation/completion/fitting out/repair/maintenance/renovation or alteration of a civil structure or any other original works related to the beneficiary-led individual house construction/ enhancement under the housing for all (urban) mission or Pradhan Mantri Awas Yojana.
Note: The above exemption is not allowed if the supplier does contraction work as a whole, including labour or if such construction involves multiple units.
The Bottom Line
GST on labour charges is an integral aspect of the taxation landscape in India. To navigate this realm effectively, a clear understanding of HSN codes and their significance is essential. Service providers and recipients must take the time to correctly identify the appropriate code for the labour services offered or availed. This ensures compliance with the tax regulations and prevents unnecessary hassles and disputes in the long run. As the GST framework evolves, staying updated with the latest HSN codes and their applications will continue to be a crucial aspect of doing business smoothly in the country.
Related Read: HSN Code Mandatory in GST: When and Why
Frequently Asked Questions:
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What is the HSN code for labour charges?
Labour Charges HSN codes range from 9954 to 9967 and are divided into various sub-categories.
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What is the HSN code for civil labour work?
Construction of buildings falls under works contract services, which are classified under HSN code 9954.
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What is the GST rate for HSN code 9987?
HSN Code for 9987 Is18%
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Are there any HSN codes for the labor charges of construction services?
Yes, labor charges for construction services may be classified under a different HSN code of SAC 9954, depending on the construction service that is being offered.
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What are the scenarios in which GST on labor charges is exempted?
Yes, it is correct that some labor charges like those in agriculture sector, healthcare and education could be out of the GST.
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Can input tax credit (ITC) be availed on GST charged for the labor charges?
Yes, input tax credit can, as a rule be availed on GST levied on labor charges, given that the costs are for the business activities and other conditions for entitling ITC have been met.
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What are the repercussions that are involved in case the right HSN code for labor charges is not applied?
Novel application of HSN code for labor charges may entail penalties which in addition to interest can also lock out input tax credit. HSN code plays a critical role in compliance with GST law; hence, the correct HSN code must be used.
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How does the implementation of GST affect the determination of labor charges for the small business?
Small registered dealers with a turnover below a certain amount (Below Rs 20 lakhs in most of the states), have been exempted from GST on Labour charges. However, they need to monitor their turnover so that they do not transverse the limit and fail to undertake the GST registration.
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Can the mechanism of reverse charge be used with the labor charges?
It is especially in what is known as the reverse charge mechanism or RCM. RCM is a mechanism in which the recipient of the labor service is required to payout levies including GST as opposed to the supplier. This is often valid where the services received are from unregistered suppliers.
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How do I go about the GST on labor charges related to Export of services?
The services dispensed by export laboratory services qualify for a nil GST rate. This is an implication that even though no GST is charged, you can still claim the input tax credit on inputs and input services that are used in the provision of exports service.
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Is there any penalty for filing wrong GST in regard to the charges for labor?
Yes, there are consequences for non-GST filing or filing GST in a wrong manner and the consequences include penalties, interest, and even legal consequences. To avert such cases, proper and efficient filling of the GST returns should be conducted.
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What is the GST rate regarding labor expenses by providing repair and maintenance services?
Hence, the GST rate applicable to the labor charges in regard to repair and maintenance services is usually 18 percent though it could differ with the kind of service. As a result, it is appropriate to ascertain the rate, which applies particularly to the kind of service provided.
