Big relief to Govt. Contractors from GST rate cut on works contracts and Construction related service provided to Central Government, State Government, Union Territory, a local authority or a governmental authority.

The Goods and Services Tax (GST) Council’s decision to roll back the increased tax rate for government works contracts comes as a relief for the Govt. Contractors on increased tax liability on various ongoing projects.

The GST Council’s decision to cut back GST rate on construction contract works to 12% has come as a big relief to Govt. Contractors.

The tax on construction activity, including composite work contracts, was 18% under GST. However, Finance Minister Arun Jaitley announced after the GST Council meeting on 05th August, 2017 and 09th September, 2017 that government works contract, for both Centre and states, will attract 12% GST with input tax credit. Notification No. 20/2017-Central Tax (Rate) New Delhi, the 22nd August, 2017 and Notification No. 24/2017-Central Tax (Rate) New Delhi, the 21st September, 2017 has been issued to give effect for the same decision. 

Notification No. 20/2017-Central Tax (Rate) GST @ 12%, Generally applicable on those work contracts which were 100% exempt under Service Tax Act. Following Composite supply of works contract supplied to the Government, a local authority or a Governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of, –

a. a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958);

b. canal, dam or other irrigation works;

c. pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal.

___________________________________________

(a) a road, bridge, tunnel, or terminal for road transportation for use by general public;

(b) a civil structure or any other original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas Yojana;

(c) a civil structure or any other original works pertaining to the “In-situ rehabilitation of existing slum dwellers using land as a resource through private participation” under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana, only for existing slum dwellers;

(d) a civil structure or any other original works pertaining to the “Beneficiary led individual house construction / enhancement” under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana;

(e) a pollution control or effluent treatment plant, except located as a part of a factory; or

(f) a structure meant for funeral, burial or cremation of deceased

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(a) railways, excluding monorail and metro;

(b) a single residential unit otherwise than as a part of a residential complex;

(c) low-cost houses up to a carpet area of 60 square metres per house in a housing project approved by competent authority empowered under the ‘Scheme of Affordable Housing in Partnership’ framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India;

(d) low cost houses up to a carpet area of 60 square metres per house in a housing project approved by the competent authority under-

competent authority under- (1) the “Affordable Housing in Partnership” component of the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana; (2) any housing scheme of a State Government;

(e) post-harvest storage infrastructure for agricultural produce including a cold storage for such purposes; or

(f) mechanised food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages.

______________________________________________________

♠  Notification No. 24/2017-Central Tax (Rate) GST @ 12% generally applicable on those work contracts which were taxable under Service Tax after 01.04.2015 and these contracts were exempt under service tax before 01.04.2015. Following Services provided to the Central Government, State Government, Union Territory, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of –

(a) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;

(b) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or(iii) an art or cultural establishment; or

(c) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in paragraph 3 of the Schedule III of the Central Goods and Services Tax Act, 2017.

Conclusion  

  • As per my view there will be no loss to the contractors on all the ongoing Govt. Projects, even if GST is not paid by the Govt. departments in addition to the quoted financial bid price because of input tax credit available on purchase and other expenditure.
  • Due to above notification there will be benefit of approx @6 % to the Contractors who has awarded project before considering above notification effect and in which they have quoted rate inclusive of GST in their financial bid. Because now the GST rate is 12% but during analysis they may have considered GST@18% while quoting financial bid.

Thanks & Best Regards,

CA Ankit Kumar Jha (caankitjha@gmail.com)

ACA, M.Com, B.Com

Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice.

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30 Comments

  1. p ravikumar says:

    Dear sir
    State Govt civil road works sub contractor 12% gst rate and 18%
    please explain (total works back to back provided how much gst rates and part of work provided how much gst rates 18% or 12%please example explain

  2. VR Rao says:

    Sir,
    we received a govt.project to conduct campaigns to create awareness about education to parents in villages.do we need to collect gst?and Pay Gst?

  3. Goutam Kundu says:

    Sir,
    We got a state government office building Air conditioning work in turn key contract basis. Please let me know what would be the GST rate for this job. Somebody says it shall be 12% somebody says 18% can you guide me the actual GST rates for this work

  4. Niranjan Panja says:

    I am a govt contractor engaged to reparing work,my aggregate tornover 20 lach , out of this amount govt deducted 1% tds and 1% cess, no gst amont is added in bill, shall I liable for pay gst

  5. nirav patel says:

    respected sir
    i am a sub contractor under a government contractor as a labour contractor.
    the main contractor is working as a contractor for pradhan mantri awas yojna ews2 in vadodra gujarat.
    i am working as a sub contractor or labour contractor for rcc masonary and plastering work
    so do i fall under liable to pay gst as main contractor is saying as an exemption for me and the main contractor is taxable at 12 %

    help me out plase

  6. Ankit patel says:

    I am government civil contractor . 12 % gst rate is very high for me cause of compition . Can’t afford to pay 12 % gst rate . Cause our margin is below 10 % . Our material input credit is low and labour cost is very high . Not understand what to do ? If this rate will continue its batter for I closed my business .. what to do ?

  7. p n singh says:

    sir, i am a ddo in state govt. A govt contractor is working in prepration of DPR of canal workwhich includes survey etc only service tax is applicabe. my question is wether the contractor is exemted from service tax before GST since he is dealing with govt work or not.
    My other question is what will be the GST rate now for the same work in govt work of survey work of prepration of DPR for canal work in irrigation.
    regards

  8. surender Singh says:

    Sir, is G.S.T paid by govt. department to the contractor with his bill in Haryana ? if any notification then please tell me, because departments are not paying G.S.T to the contractor and contractors are in troubles because they paid to the Govt. whereas the contractor profit is only 10 % in the works including 1 % Income tax and 1 % labour cess

  9. Md Sharfaraz says:

    Sir. I am a civil contractor in working under government . My question is that I have take a tender before launching GST the work order have been issued before July 2017 without GST and the work has been completed in the month of August 2017 . So will u plz tell me that I have to pay GST or not for that job works.

  10. Rajan Macwan says:

    In same Bill Solemnly contractor get 18 % GST and who registered as Company Get 9 % GST i.e 50 %
    Both are working as a Company. Solemnly contractor not working him self he also take contract at many palce but he got more benefit

  11. Rajan Macwan says:

    Some time contractor who has license and other who has different type of GST claim I found some Got Total GST from Govt. Authority and some 50 % how can it possible

  12. Abdul Zathar TA says:

    I’m a Govt contractor, and i completed a work of local authority (grama panchayath). The work is to manufacture bunk shops for Grama panchayath to supply to poor people. My question is that, How much should be the Gst rate for this work. Is it 12% or 18%.. (Normally i’m paying 12% on road works)

  13. neeraj chandra sahoo says:

    dear sir

    MY GST NO FOR WORK CONTRACT IN UP AT THAT TIME TAKE WORK IN MP WHICH GST TAX IS APPLICABLE FOR ME

    PLS. CLEAR MU DOUBT

  14. neeraj chandra sahoo says:

    Dear Sir
    My gst no in UP for work contract purpose at that time work contract in mp , which tax charge on bill

    Pls. explain

  15. Puneet Kapoor says:

    Sir i am contractor in irrigation and public health department,Himachal Pradesh.Earlier department used to deduct our sales tax but now sfter GST applicable no tax has been deducted by the department.WE are dealing into repair & maintenance of Machinery.We dont knw how much tax we have to deposit as GST and on which amount because some payments are made of tenders which were floated before GST ie.07/2017 and works wer done before GST and some were floated before GST but works were done after GST.

  16. Saahil Kapoor says:

    Sir i am manufacturer and supplier of footwear to several defense and civil departments. There were several contracts which were placed to us during pre GST regime having lower VAT rates whereas, those orders were executed during GST regime having higher tax rate but unfortunately lot of departments while making payments to us are denying us the increment in tax rate as result of introduction of GST and has resulted in lot of harrassment at our end. Can you please provide us any Order/Circular/Noting by Govt of India stating that all the goods supplied during GST regime should be paid with GST. I would really appreciate your help in this.
    Thanking you in anticipation.

  17. n.p says:

    what if some work contractors in civil i.e. Government contractors are exempted from service tax? so are they also exempted from GST on work contractors??

  18. praveen gupta says:

    dear sir
    i am govt contractor & also work with different construction co as sub contractor and work in different state like haryana utter pradesh & delhi
    i have taken gst in delhi add now pl advise me that
    can i do do construction work in haryana & up on delhi gst no

  19. Paresh Kothari says:

    Under the Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana, If we are giving works contract (act as a subcontractor)services to the agency who is the main contractor (service provider) to the goverment , then what is the rate of tax we as a subcontractor should collect from main dealer?.Is it 18% or 12%.

  20. Hitesh Choudhary says:

    Sir,
    I’m a Subcontractor of main contractor under the Municipal Corporation of Greater Mumbai (MCGM). The entire liability of the work is on me. Now the GST rate for the main contractor is 12% and since the tax liability is on me, I’m ready to take the liability of 12%. I just wanted to conform the GST rate of the subcontractor in this case.
    Please help

  21. ADARSHA says:

    If we are giving works contract (act as a subcontractor)services to the agency who is the main contractor (service provider) to the goverment , then what is the rate of tax we as a subcontractor should collect from main dealer?.Is it 18% or 12%.

  22. caankitjha says:

    Section 17 (5) is not applicable where it is an input service for further supply of works contract service. Therefore no blockage of input credit for Provider of work contract service.

  23. CA. C V SURYAM says:

    1) H Mr. Nizam:- The restriction mentioned by you is not applicable to the works contract services.

    2) Mr.Ankith Kumar Jha:- Your article dealt with only one layer of whole contract. But what about the other layers/tiers in a whole contract i.e., this 12% is applicable direct Govt. WCS and it did not discuss about the sub-contractors’ tax liability because there is no clear mention about this in notification like under service tax (Refer Sl. No.29(h) of N. No.25/2012-ST). In such case of confusion, sub-contractors will charge 18% on main contractors which again a serious concern of cash ouflows to main contractor. Isn’t it?

    1. caankitjha says:

      Mr. CA. C V SURYAM :- GST @12% is not applicable for subcontractors as, till the time no notification has been issued by the Govt. in respect of subcontractor providing services by way of works contract to another contractor
      providing works contract services which are taxable @12% by way of Notification No. 20/2017-Central Tax (Rate) New Delhi, the 22nd August, 2017 and Notification No. 24/2017-Central Tax (Rate) New Delhi, the 21st September, 2017. Therefore Rate will be 18% for Sub contractor providing work contract service to main Govt. Contractor.

      However in the Pre GST era, subcontractor were exempt under service tax by Notification No. 25/2012 clause 29(h) for providing services by way of works contract to another contractor providing works contract services which were exempt; but no such notification available in GST till the time.

      I am agree with you it may be a serious concern of cash outflows to main contractor or there maybe situation of refund of GST due to excess availability of input tax credit.

      1. Sudesh Rathi says:

        It is pertinent to note that as per the provisions of Sec 54 refund can be claimed only for two reasons

        1. Zero rated supplies made without payment of tax.

        2. Where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies.

        The word input is defined to mean goods other than capital goods. The section is silent about input services. Sub contractors are service providers therefore in my opinion though tax rate of input services is higher than the tax rate of output supplies the main contractor will not be entitled to claim refunds but can carry it forward.
        Please revert back on the same issues with your views.

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