Works contract means a service contract involving supply, a mixture of service and transfer of goods. Examples of works contracts are the construction of a new building, erection, installation of plant and machinery. The article covers applicability of GST on works contracts in detail.
Taxability of Works Contract
As per GST, A contract for the construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration, or commissioning of any immovable property in which the transfer of property in goods (whether as goods or in another form) is involved in the execution of such contract is referred to as a “works contract”.
Any such composite supply on products, such as a fabrication or paint job in an automotive body shop, will not fall under the GST definition of term works contract per se. Such contracts would continue to be composite supply, but they would not be considered a Works Contract for GST purposes.
Cracking the Correct HSN Code
Key considerations that guide the classification of works contracts:
The Predominance Principle:
At the core of works contract classification is the ‘predominance test,’ which entails whether the supply is primarily composed of goods or services. This distinction forms the foundation for selecting the corresponding HSN code.
Goods-Dominance Works Contracts:
In Contracts where the works contract leans towards the supply of goods, the relevant HSN code for those goods is applied. For instance, if a contract involves the construction and installation of machinery, the HSN code corresponding to that specific machinery would be the classification.
Service-Dominance Works Contracts:
Conversely, if the dominant aspect of the works contract pertains to services, the HSN code for services takes precedence. For example, if the contract encompasses repair and maintenance services, the HSN code for those specific services becomes the focal point.
After the Classification of Contract you have to accurately assign the HSN codes to these transactions to ensure appropriate taxation and compliance.
Input Tax Credit not available on some works contract
GST Law mentions that input tax credit is not available for-
- Works contracts 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.
- Goods or services received by a taxable person for construction of an immovable property on his own account, other than plant and machinery, even when used in course or furtherance of business.
Input tax credit is available to both a builder and a taxable person while constructing plant and machinery. But input tax credit is not available to any taxable person who constructs on his own account even if it is for business use.
Also Read: HSN Code Mandatory in GST: When and Why
Rate Of GST For Works Contract
The GST rates applicable for various classes of works contracts are as follows:
| HSN Code | Description | GST Rate |
| 9954f2wf | (iii) Composite supply of works contract as defined in clause (119) of Section 2 of the CGST Act, supplied to the Central Government, state governments, Union Territories or a local authority by way of construction, commissioning, erection, installation, completion, fitting out, maintenance, repair, renovation, or alteration of-
(a) a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958) (b) canal, dam or other irrigation works;(c) pipeline, conduit or plant for- (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal. |
12%
|
| 9954 | (iv) Composite supply of works contract as defined in clause (119) of Section 2 of the CGST Act, (other than that covered by items (i), (ia), (ib), (ic), (id), (ie) and (if) under construction services), supplied by way of construction, commissioning, erection, installation, completion, fitting out, maintenance, repair, renovation, or alteration of-
(a) A road, tunnel, bridge, or terminal for road transportation for use by general public (b) A civil structure or any other original works pertaining to a scheme under the Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas Yojana (c) A civil structure or any other original works pertaining to the “ln-situ redevelopment of existing slums using land as a resource, under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (Urban) (d) A civil structure or any other original works pertaining to the “Beneficiary led individual house construction/enhancement” under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (da) A civil structure or any other original works pertaining to the “Economically Weaker Section (EWS) houses” constructed under the affordable housing in partnership by State or Union Territory or local authority or urban development authority under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (Urban) (db) A civil structure or any other original works pertaining to the “houses constructed or acquired under the Credit Linked Subsidy Scheme for Economically Weaker Section (EWS)/ Lower Income Group (LIG)/ Middle Income Group-1 (MlG-1)/ Middle Income Group-2 (MlG-2)” under the Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana (Urban) (e) A pollution control or effluent treatment plant, except located as a part of a factory; or (f) A structure meant for funeral, burial or cremation of deceased, provided that during the period beginning from 14th June 2021 and ending on 30th September 2021, the central tax on service of description specified in clause (f), shall be levied at the rate of 5% (g) A building owned by an entity registered under Section 12AA [or 12AB] 21 of the Income Tax Act which is used for carrying out the activities of providing centralised cooking or distribution for mid-day meals under the mid-day meal scheme sponsored by the Central Government, state governments, Union Territories or local authorities.]
|
12% |
| 9954 | (v) Composite supply of works contract as defined in clause (119) of section 2 of the CGST Act, (other than that covered by items (i), (ia), (ib), (ic), (id), (ie) and (if) under construction services), supplied by way of construction, erection, commissioning, or installation of original works pertaining to-
(a) Railways, excluding monorail and metro (b) A single residential unit otherwise than as a part of a residential complex (c) Low-cost houses up to a carpet area of 60 sq.m. per house in a housing project approved by a competent authority empowered under the ‘Scheme of Affordable Housing in Partnership’ framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India (d) Low-cost houses up to a carpet area of 60 sq.m. per house in a housing project approved by the competent authority under- (1) The “Affordable Housing in Partnership” component of the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (2) Any housing scheme of a State Government; (da) low-cost houses up to a carpet area of 60 sq.m. per house in an affordable housing project which has been given infrastructure status vide notification of Government of India, in Ministry of Finance, Department of Economic Affairs vide F. No. 13/6/2009-INF, dated the 30th March 2017 (e) Post-harvest storage infrastructure for agricultural produce including a cold storage for such purposes (f) Mechanised food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages. |
12% |
| 9954 | (va) Composite supply of works contract as defined in clause (119) of Section 2 of the CGST Act, other than that covered by items (i), (ia), (ib), (ic), (id), (ie) and (if) under construction services, supplied by way of construction, erection, installation, completion, commissioning, fitting out, maintenance, repair, renovation, or alteration of affordable residential apartments covered by sub- clause (a) of clause (xvi) of paragraph 4 in a project which commences on or after 1 st April 2019, or in an ongoing project in respect of which the promoter has not exercised the option to pay integrated tax on construction of apartments at the rates as specified for item (ie) or (if), as the case may be, in the manner prescribed therein* | 12% |
| 9954 | (vi) Composite supply of works contract as defined in clause (119) of section 2 of the CGST ACT (other than that covered by items (i), (ia), (ib), (ic), (id), (ie) and (if) under construction services), provided to the Central Government, state governments, Union Territories or a local authority, by way of construction, erection, installation, completion, commissioning, fitting out, maintenance, repair, renovation, or alteration of-
(a) A civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession (b) A structure meant predominantly for use as (i) An educational, (ii) A clinical, or (iii) An art or cultural establishment; or (c) A residential complex predominantly meant for self-use or the use of their employees or other persons specified in paragraph 3 of the Schedule III of the Central Goods and Services Tax Act, 2017. [Explanation- For the purposes of this item, the term ‘business’ shall not include any activity or transaction undertaken by the Central Government, state governments, or any local authority in which they are engaged as public authorities.] |
12% |
| 9954 | (vii) Composite supply of works contract as defined in clause (119) of section 2 of the CGST Act, involving predominantly earth work constituting more than 75% of the value of the works contract provided to the Central Government, a state government, Union Territory or a local authority. | 5% |
| 9954 | (viii) Composite supply of works contract as defined in clause (119) of section 2 of the CGST Act, and associated services in respect of offshore works contract relating to oil and gas exploration and production (E&P) in the offshore area beyond 12 nautical miles from the nearest point of the appropriate baseline. | 12% |
| 9954 | (ix) Composite supply of works contract as defined in clause (119) of section 2 of the CGST Act, provided by a sub-contractor to the main contractor providing services specified in item (iii) or item (vi) above to the Central Government, state governments, Union Territories or a local authority. | 12% |
The Bottom line
Businesses must be aware of the HSN codes applicable to their products, as these codes determine the tax rates and other associated regulatory requirements.
Do you need help Finding Your Products or service HSN or SAC code? CaptainBiz is the ultimate GST billing software that helps you provide the same and also Provides simple invoicing, real-time inventory management, and cost reduction, allowing you to grow your business seamlessly.
Frequently Asked Questions:
- What is the HSN code for GST work contract?
HSN code 9954, SAC code 995473 and GST Rate 18%. For further queries contact on 9905126744.
- What is the HSN code for a works contract 18%?
New GST Rates on works contract services into effect from 18.07. 2022. HSN code (SAC) is 9954 in all cases for works contract
