Gst on labour sub contract

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

10 September 2018 Hi,
Let Say A is main Govt .contractor and he sub Contact B for that Govt Contract . Now in turn B Sub contract C only for Labour Work .

I know for A & B GST Rate is 12% but what rate applicable for C 12% or 18% its pure labour contract for C.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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10 September 2018 12% GST applicable on such sub contractor.

Querist : Anonymous

Querist : Anonymous (Querist)

11 September 2018 Hi sir thank you for your reply. but our CA is telling that C is not giving service to main contractor (A) he is suppling services to sub contractor( B) and also it not composite works contract its purely labour contract for C so GST rate would be 18% for C.
Now i am in confusion.

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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27 July 2024 In the scenario you described, where C is subcontracting labor work to B, and B is subcontracting to A for a government contract, the GST rate applicable depends on various factors. Here’s a detailed explanation based on the GST rules:

### 1. **GST on Subcontracting for Labor Services**

#### **GST Rate for Subcontractor C (Providing Labor Services)**

**GST Rate for Labor Services:**
- **Labor Contract Services:** If subcontractor C is providing purely labor services, the applicable GST rate is **18%**. This is because labor services provided in isolation, and not as part of a composite or mixed works contract, fall under the standard GST rate of 18%.

**Composite Works Contract:**
- **Definition:** A composite works contract involves both supply of goods and services (such as construction or maintenance contracts), and it generally attracts a different GST rate (typically 12% under GST).

**Pure Labor Services:**
- **Standard Rate:** Since C is providing only labor services and not a composite or mixed works contract, the applicable GST rate for C’s labor services is **18%**.

### 2. **GST Rate for B and A**

**For B (Subcontractor):**
- **Works Contract:** If B is engaged in a works contract for A, which includes construction or composite work for a government contract, the rate applicable is typically **12%** under GST for works contracts. This rate applies if the services fall under the scope of a composite works contract.

**For A (Main Contractor):**
- **Government Contract:** If A is the main contractor providing works for a government contract, the same **12%** GST rate on works contracts applies to A.

### 3. **Clarification Based on Subcontracting Chain**

- **Subcontractor C:** Provides purely labor services to B. The rate for these labor services is **18%** GST as they do not qualify as a composite works contract.
- **Subcontractor B:** Provides composite works contract services to A. Hence, the rate is **12%** GST.
- **Main Contractor A:** As the main contractor for a government contract, the applicable GST rate is **12%** for works contracts.

### 4. **Important Considerations**

- **Nature of Services:** Ensure the nature of services provided by C is strictly labor and not part of a composite contract. The distinction is crucial for applying the correct GST rate.
- **Documentation:** Proper documentation should be maintained to ensure correct GST rates are applied and claimed. This includes agreements, invoices, and other relevant documents.

### Summary

- **GST Rate for C (Purely Labor):** **18%** GST.
- **GST Rate for B (Composite Works Contract):** **12%** GST.
- **GST Rate for A (Main Contractor for Government Contract):** **12%** GST.

Given the complexity of subcontracting and GST rates, and to ensure compliance with GST laws, consulting with a GST professional or tax advisor is advisable to confirm the correct rates and any specific nuances in your situation.