Goods and Services Tax (GST) was introduced in India on July 1, 2017, with the aim of bringing uniformity in the taxation structure, increasing transparency, and simplifying the tax system. GST has replaced multiple indirect taxes, including service tax, value-added tax (VAT), and Central Excise Duty. However, there still seems to be some confusion as to whether GST is applicable on works contracts.
A works contract is an agreement between two parties, where one party undertakes to execute a specific work, and the other party agrees to pay for the work done. For example, a construction company may undertake the construction of a building for a client, or a maintenance company may undertake the maintenance of an office building. According to the GST law, a works contract is considered a supply of services and is subject to GST.
The GST applicable on works contracts depends on the nature of the contract. Works contracts can be broadly categorized into two types: composite and mixed. Composite contracts are contracts where both goods and services are supplied as a single package, and the value of goods supplied is not more than 25% of the total contract value. For example, if a construction company undertakes the construction of a building and supplies all the materials required for the construction, it will be considered a composite contract. In such cases, GST is applicable on the entire contract value at the rate applicable to the service provided.
Mixed contracts, on the other hand, are contracts where both goods and services are supplied as a single package, and the value of goods supplied is more than 25% of the total contract value. For example, if a maintenance company undertakes the maintenance of an office building and supplies the materials required for the maintenance, it will be considered a mixed contract. In such cases, GST is applicable on the goods portion of the contract at the rate applicable to the goods supplied and on the services portion of the contract at the rate applicable to the service provided.
It is important to note that the GST applicable on works contracts is different for different types of contracts. Moreover, the GST rates applicable to works contracts are subject to change from time to time, depending on the decisions taken by the GST Council.
In conclusion, GST is applicable on works contracts in India. The applicability of GST on a works contract depends on the nature of the contract, whether it is a composite or a mixed contract. It is always advisable to seek the guidance of a GST expert to ensure compliance with the GST laws and regulations.