Works Contract Services in Mohan Garden New Delhi India

What is a works contract?

A works contract is essentially a contract of service which may also involve supply of goods in the execution of the contract. It is basically a composite supply of both services and goods, with the service element being dominant in the contract between parties.

A contract of works, may relate to both immovable and immovable property. E.g. if a sub-contractor, undertakes a sub-contract for the building work, it would be a works contract in relation to immovable property.

Works Contract under GST:

Under GST laws, the definition of “Works Contract” has been restricted to any work undertaken for an “Immovable Property” unlike the existing VAT and Service Tax provisions where works contracts for movable properties were also considered.

The Works Contracts has been defined in Section 2(119) of the CGST Act, 2017 as

“works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract.”

Position Maintenance of records:

As per Rule 56 (14) of the CGST Rules, 2017, every registered person executing works contract shall keep separate accounts for works contract showing - (a) the names and addresses of the persons on whose behalf the works contract is executed; (b) description, value and quantity (wherever applicable) of goods or services received for the execution of works contract; (c) description, value and quantity (wherever applicable) of goods or services utilized in the execution of works contract; (d) the details of payment received in respect of each works contract; and (e) the names and addresses of suppliers from whom he received goods or services.

Valuation

Valuation of a works contract service is dependent upon whether the contract includes transfer of property in land as a part of the works contract.

In case of supply of service, involving transfer of property in land or undivided share of land, as the case may be, the value of supply of service and goods portion in such supply shall be equivalent to the total amount charged for such supply less the value of land or undivided share of land, as the case may be, and the value of land or undivided share of land, as the case may be, in such supply shall be deemed to be one third of the total amount charged for such supply.

Explanation. – For the above purpose, “total amount” means the sum total of,-

(a) Consideration charged for aforesaid service; and

(b) Amount charged for transfer of land or undivided share of land, as the case may be

Place of Supply in respect of Works Contract

Works Contract under GST would necessarily involve immovable property. In view of the same the place of supply would be governed by Section 12(3) of the IGST Act, 2017, where both the supplier and recipient are located in India. The place of supply would be where the immovable property is located.

In case the immovable property is located outside India, and the supplier as well as recipient both are located in India, the place of supply would be the location of recipient as per proviso to Section 12(3) of the IGST Act, 2017.

As per Section 13(4) of the IGST Act, 2017, in cases where either the Supplier or the Recipient are located outside India, the place of supply shall be the place where the immovable property is located or intended to be located.

Works Contract- Input Tax Credit (ITC):

Under GST, seamless tax credit flow has been ensured by providing for the availment of ITC to the purchasing dealer in respect of the GST paid by the supplying dealer.

ITC has been defined as credit of IGST/CGST/SGST charged on any supply of goods and or a service used or intended to be used in the course or furtherance of business and includes the tax payable under reverse charge. Registered taxable person shall be eligible to avail ITC credited to the e-credit ledger subject to condition prescribed without restrictions of availment

“works contract services when supplied for construction of an immovable property (other than Plant and Machinery) except where it is an input service for further supply of Works contract service” The restriction does not apply to plant and machinery and also in case the input services are further used for supply of Works Contract service under GST.

The statement above makes it clear that Input Tax Credit cannot be claimed by the recipient of works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service.

TDS on the work contract

The rate of TDS will be 2% is required to be deducted on payment made to the supplier of tax goods or services of both where the value of the contact is exceed RS 2.5 lakn and also need if there is a single supply is less than 2.5 lakh and the work contract is more than 2.5 lakh @2%

If there will be sales inter-state than 1% TDS is required to deduct under both CGST and SGST therefore total TDS will be 2% and if the sales Inter-state than IGST will be levied and TDS will be 2%

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Works Contract

What is a works contract?

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