Gst on sub contract works

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

01 March 2018 I am a government contractor. i am receiving 50.00 lakhs during one year towards government contract works. I am giving works on sub contract to one sub contractor for Rs. 30.00 lakhs. He is purely doing labour works for me. No material is involved in his work. Is he liable to pay tax under GST? Can the experts clarify please?

Expert : Anonymous

Expert : Anonymous (Expert)

01 March 2018 Yes even though he is not providing any works contract service, he is providing supply of pure labour services. Hence he is liable to pay GST

Querist : Anonymous

Querist : Anonymous (Querist)

01 March 2018 Labour works not exempted from gst?

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Expert : Anonymous

Expert : Anonymous (Expert)

02 March 2018 Yes... The Sub Contractor will be liable under GST. Also the threshold limit is exceeding 20lakhs then he ll register under GST...

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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27 July 2024 ### GST on Sub-Contract Works

In the context of GST and sub-contracting, here are the key considerations:

#### **1. GST Applicability on Sub-Contract Works**

**A. **General Rule:**

- **GST on Sub-Contractor’s Services:** Yes, the sub-contractor is liable to pay GST on the services provided, even if the work involves only labor and no materials. The sub-contractor's services are taxable under GST.

- **Rate of GST:** For sub-contracting services, the applicable GST rate is generally **18%**. This is under SAC (Service Accounting Code) 9954, which covers construction and related services.

**B. **Labour Services Only:**

- **Pure Labour Contract:** Even if the sub-contractor is providing only labor without materials, GST is still applicable. The fact that it is a pure labor contract does not exempt the service from GST.

- **SAC Code:** The SAC code for construction and related services is 9954, and the rate is generally 18%.

#### **2. Registration and Threshold Limits**

**A. **Sub-Contractor’s Registration:**

- **Threshold Limit for GST Registration:** The threshold limit for mandatory GST registration is Rs. 20 lakhs (Rs. 10 lakhs for special category states). Since the sub-contractor’s annual turnover of Rs. 30 lakhs exceeds this threshold, the sub-contractor is required to be registered under GST.

- **Impact of Registration:** Upon exceeding the threshold, the sub-contractor must obtain GST registration and comply with all GST-related obligations, including charging GST on the services provided, filing GST returns, and maintaining proper records.

#### **3. **Impact on the Main Contractor**

**A. **Input Tax Credit (ITC):**

- **Claiming ITC:** As a main contractor, you can claim Input Tax Credit (ITC) on the GST paid to the sub-contractor, provided the sub-contractor is registered and issues a proper tax invoice. This ITC can be used to offset the GST liability on your supplies.

**B. **Tax Liability:**

- **Reverse Charge:** Typically, reverse charge is not applicable in a standard subcontracting scenario. You, as the main contractor, will be responsible for paying GST on the contract amount to the government. The sub-contractor must charge GST on their invoice to you.

#### **4. **Practical Steps:**

**A. **For the Sub-Contractor:**

1. **Obtain GST Registration:** Ensure registration under GST as the turnover exceeds the threshold limit.
2. **Issue GST Invoice:** Charge 18% GST on the invoice for services rendered.
3. **File GST Returns:** Regularly file GST returns and maintain proper records.

**B. **For the Main Contractor:**

1. **Verify Registration:** Confirm that the sub-contractor is registered under GST.
2. **Claim ITC:** Ensure to claim Input Tax Credit on GST paid to the sub-contractor.
3. **Maintain Compliance:** Ensure proper documentation and compliance with GST requirements.

### **Summary:**

1. **GST on Sub-Contractor’s Services:** Yes, GST at 18% is applicable.
2. **Registration:** The sub-contractor must register under GST as the turnover exceeds Rs. 20 lakhs.
3. **ITC:** As a main contractor, you can claim ITC on the GST paid to the sub-contractor.

### **References:**

- **GST Act and Rules:** Refer to the GST Act, particularly provisions related to the rate of tax on construction services and the reverse charge mechanism.
- **SAC Codes:** Service Accounting Code 9954 covers construction and related services.

For specific situations or further clarification, consulting with a GST professional or tax advisor is recommended.