ITC on work contract

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Hiren

Hiren (Querist)
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08 August 2017 ITC is available for work contractor under GST ?

VIPIN KUTUMBALE

VIPIN KUTUMBALE (Expert)
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08 August 2017 No works contract service ITC not awable except if he is in same line of buisiness i e in works contract service ( as sub contractor)

Hiren

Hiren (Querist)
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08 August 2017 thank you sir for quick reply in the case of contraction of residency flat builder give contract for civil work (labour + material) contractor charges GST 18% on work contract . above case builder will not get any credit on GST .

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Asha Kanta Sharma

Asha Kanta Sharma

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02 August 2024 Under the Goods and Services Tax (GST) regime in India, the treatment of Input Tax Credit (ITC) on work contracts can be complex, and it often depends on the nature of the work contract and the final use of the output. Here’s a detailed breakdown relevant to your situation:

### Input Tax Credit (ITC) on Work Contracts

1. **Work Contract Definition:** Under GST, a work contract is a contract for carrying out any construction, erection, commissioning, or installation of any structure, including residential buildings. It includes both labor and material.

2. **ITC Eligibility:**
- **For Builders and Developers:** Builders and developers who are involved in construction activities, such as constructing residential flats, can generally claim ITC on input services and goods used in the construction process. However, there are specific rules governing this.
- **For Residential Flats:** The ITC on work contracts related to the construction of residential flats is subject to certain restrictions.

3. **Residential Construction Specifics:**
- **ITC on Inputs and Input Services:** Builders or developers can claim ITC on inputs and input services used for construction. This includes materials and services that are used in the construction of residential flats.
- **No ITC on Output Supply:** If the construction service is supplied for the construction of residential apartments (which are eventually sold as a completed property), the ITC on the construction services provided (i.e., the work contract) may not be eligible. This is because the output supply of such residential units is typically exempt from GST (subject to certain conditions and thresholds).

4. **Reverse Charge Mechanism (RCM):**
- **ITC Restrictions:** Even if the contractor charges GST at 18% on the work contract, the builder might not be able to claim ITC if the output supply (sale of residential flats) is exempt from GST. The builder might be ineligible to claim ITC on services received in such a case.

### Summary

- **Builder’s Perspective:** Builders or developers can generally claim ITC on inputs and input services used for construction. However, for residential construction, if the final output (sale of flats) is exempt from GST, the ITC on work contracts might not be available.
- **Contractor’s GST:** The contractor charges GST on the work contract, but the availability of ITC depends on the nature of the final product and the applicable GST rules.

**Note:** Tax regulations can be complex and subject to change, so it’s advisable to consult a tax professional or GST consultant for specific guidance tailored to your situation and to ensure compliance with current laws.