Goods and Service Tax implementation has left its vast effect on the various sector and labour sector is one of the same. The present article helps to analyze the types of the labour contract, exemption available under GST to pure labour contract and GST tax implication on outside hired labour.
The Labour contract can be of the following two types –
1. Labour contract involving the supply of both material and labour –
When labour contract involves both supply of labour as well as material, the said contract is termed as ‘works contract’.
2. Labour contract involving the supply of only labour –
When labour contract involves the supply of only labour, the said contract is termed as ‘pure labour contract’.
GST rate in both the case is 18%. However, the certain service provided under the pure labour contract is exempted and the same is briefed hereunder.
Vide notification no. 12/2017-Central Tax (Rate) dated 28th June, 2017, the following services of ‘pure labour contract’ are exempted from GST –
1. Services of construction / erection / commissioning or installation of original works pertaining to a ‘single residential unit’ otherwise than as a part of a residential complex.
2. Services of construction / erection / commissioning / installation / completion / fitting out / repair / maintenance / renovation or alteration of a civil structure or any other original works pertaining to the beneficiary led individual house construction or enhancement under the housing for all (urban) mission or Pradhan Mantri Awas Yojana.
In case the labour supplying agency is registered under GST, then, the agency would be charging GST for the labour supply and the labour contractor will get the input tax credit of the same.
In case the labour supplying agency is not registered under GST, then, the labour contract is required to pay Goods and Service Tax on the same under the reverse charge mechanism.