If you are in the construction business in India, it is essential to be aware of the Goods and Services Tax (GST) rate on works contract. Works contract involves the supply of goods and services for the construction, renovation, or maintenance of a building or structure. The GST rate on works contract varies based on several factors. In this article, we will discuss the crucial points to keep in mind regarding GST on works contract.
1. GST on Composite and Mixed Supply
In a works contract, GST is divided into two categories – composite supply and mixed supply. Composite supply is when goods and services are supplied together as a package and are taxed at a single rate. On the other hand, mixed supply is when goods and services are supplied separately and are taxed at different rates. In case of composite supply, the GST rate is 12%, and in the case of mixed supply, the rate is calculated based on the highest tax rate of the supplied goods or services.
2. GST on Construction Projects
For construction projects, the GST rate is divided into two categories – residential and commercial. In the case of residential projects, the GST rate is 5%. It means that if you are working on a residential construction project, you will be charged 5% GST on each service or product provided. On the other hand, for commercial construction, the GST rate is 18%. It means that if you are working on a commercial project, you will be charged 18% GST on each service or product provided.
3. GST on Renovation and Maintenance
The GST rate on renovation and maintenance works is 12%. It means that if you are providing renovation and maintenance services, you will be charged 12% GST on each service or product provided. However, if the renovation and maintenance work is for a residential property, the tax rate is 5%.
4. GST on Turnkey Projects
Turnkey projects are contracts where the contractor undertakes the entire project, from designing to execution, and hands over the finished project to the client. The GST rate for turnkey projects is 18%, which includes both goods and services.
5. GST Input Tax Credit
One of the significant advantages of GST is that it allows input tax credit (ITC). It means that the tax paid on goods and services can be claimed as a credit while paying the final GST. As a contractor, you can claim ITC on materials and services used in a works contract. However, the credit cannot be claimed on goods and services used for personal consumption.
In conclusion, works contracts are significant for the construction industry, and it is crucial to understand the GST rate and other related factors. As a contractor, it is essential to maintain records of all transactions to claim ITC accurately. By keeping these points in mind, you can ensure that you comply with GST regulations and avoid any penalties or legal issues.