GST is applicable to every supply of goods or services unless a specific exemption is provided by GST law. “Labour Services” is a very usual nature of transaction with which every person interacts on some point or the other point whether for personal or commercial purposes. Therefore, it is pertinent to understand the HSN code and GST on Labour Charges, its implication on such transactions to avoid any litigations or additional costing.
In this article, we have carried out a detailed discussion on GST Implication on Labour Charges:
1. Meaning of GST on Labour Charges
- GST Law does not provide any specific definition of “Labour Charges”. Therefore, the same has to be understood in common parlance.
- As per common understanding, Labour Contracts are the agreements under which manpower is supplied by the contractor to carry out work as set out in the agreement for a consideration.
- In some cases, supply of Labour is accompanied with supply of material as well, such as, supply of Paint along with Labour for painting work.
2. Types of Labour Contracts
As discussed above, Labour Contract can be following 2 types:
Pure Labour Contract:
- Contracts under which only manpower is supplied without any accompanying material are considered as “Pure Labour contracts”. A very common example of Pure Labour contract is Supply of Security Services.
- “Labour Supply” is considered as supply of “Services” under GST.
- As per Section 2(119) of The CGST Act, “works contract” means a contract for building, construction, fabrication, completion, erection, installation, etc. of any immovable property wherein property in goods is involved in the execution of such contract.
- E.g. Construction Contract is a common example of works contract under which property in material such as bricks, cement, concrete, etc. is transferred during construction of immovable property.
- As per Entry No. 6(a) of The CGST Act, works contract services are considered as “Supply of Services”.
3. GST Implication on Labour Supply
3.1 GST Rates on Labour Supply
- Pure Labour Contract and Works Contract, both are considered as “Supply of Services” and GST and are liable to GST @ 18% under any specific exemption is provided.
- In general, GST on supply of Labour services is paid by the supplier under forward charge. Therefore, is supplier of Labour services is registered under GST then he shall charge the GST on the invoice raised to recipient of service.
- However, as per point No. 14 of Notification No. 13/2017-Central GST (CGST) Rate dated 28th June, 2017, in case of supply of security services (services provided by way of supply of security personnel), GST shall be payable under service charge Mechanism (RCM) if following conditions are fulfilled:
- Supplier of Service: Any person, other than a body corporate
- Recipient of Service: A registered person, located in taxable territory.
3.2 HSN Code for Labour Supply
Following are the different categories of HSN Code for Labour charges :
|Nature of Service
|Supply of Farm Labour
|Works Contract services
|Executive/retained personnel search services
|Permanent placement services
|Contract Staffing Services
|Long- Term staffing or payroll services
|Temporary staffing-to-permanent placement services
|Co-employment staffing services
3.3 Exemption on Labour Supply services:
As per Notification No. 12/2017- Central Tax (Rate) dated 28th June, 2017, following Labour supply services are exempted from applicability of GST:
- 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. (Point 11 to Notification)
- Pure Labour contracts of construction, erection, commissioning, installation, completion, etc. 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. (Point No. 10 of Notification).
- Pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, State Government or Union territory or local authority by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution. (Point No. 3 of Notification)
3.4 Valuation for GST
- As per Section 15 of The CGST Act, value of supply of goods or services shall be the transaction value.
- Transaction value is price actually paid or payable for said supply where the supplier and the recipient are not related and the price is the sole consideration for the supply.
- The value of supply shall include any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than GST.
- Therefore, consideration charged by the supplier of Labour shall be consideration as taxable value for the purpose of GST.
- In cases, where a supplier of Labour is liable to pay EPF or ESI or any other taxes, then such amount shall also be added to the transaction value and GST shall be charged on the complete amount.