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GST is applicable on all goods and services, including the service of the labour contract. This article classifies the various types of labour contracts and GST applicable on the same.
There are two types of labour contract:
Pre-GST, excise, VAT and service tax was charged on labour charges. But, post-GST, all three taxes got subsumed under GST. Price comparison of labour charges pre and post GST is shown below:
|Total cost (material +labour) (A)||100||100|
|Excise at 12.5% (B)||12.5||—|
|Service tax at 15% on (40% of 100) (C)||6||—|
|VAT at 5% of A (D)||5||—|
|GST at 18% of A (E)||—||18|
|Total sale consideration (A+B+C+D+E)||123.5||118|
Note: A works contract involves a composite supply of goods and services. Under service tax rules, the tax was paid at 15% to the extent of 40% of the total contract value.
Thus, with the introduction of GST, the sale consideration is reduced. Also, ITC will be available on raw materials purchased.
GST is applicable on all services unless they are specifically exempted by way of any notification or law. Services include transactions involving money but do not include money and securities or conversion by cash or any other mode. GST applies to the supply of service by way of providing labour. The different types of labour contract and exemptions available under pure works contract are discussed in detail in other sections.
For computing GST on labour charges, the transaction value is considered as the value of supply. The transaction value includes all taxes and duties levied under other statutes except IGST, CGST, and SGST. Practically, there are many expenses, which are borne on behalf of the supplier of the labour contract by the service recipient. All such charges should be included in the value of supply.
Let us take an example of ABC (labour supplier). He is supplying labour to XYZ. He is not deducting EPF and ESI on labour charges, and thus XYZ is deducting the same. So what all charges should be considered for the calculation of GST?
GST is charged on the total amount- Rs.22.8 (126.75*18%)
Any manpower services such as drivers, data entry operators and other clerical staff, security services, and housekeeping services supplied to a person (whether or not business) attract GST at 18%. It is important to note that if such services are provided to the Central or state governments or any government department will also attract GST at the rate of 18%.
On the other hand, if such manpower services are rendered as a part of any activity for any function entrusted to a Panchayat or Municipality under articles 243G and 243W respectively of the Indian Constitution, no GST is levied. For example, drivers and cleaners for the solid waste management system to City Corporation, Municipalities or Zilla Parishad. Another example can be cleaning staff, cooks, watchmen, teachers, and staff nurses in anganwadis, hostels and residential schools operated by the Social welfare department.
|Service Accounting code||Nature of service||GST rate for labour charges|
|998511||Executive/retained personnel search services||18%|
|998512||Permanent placement services||18%|
|998513||Contract Staffing Services||18%|
|998515||Long- Term staffing or payroll services||18%|
|998516||Temporary staffing-to-permanent placement services||18%|
|998517||Co-employment staffing services||18%|
|998518||Other employment and labour supply services nowhere else classified||18%|
Below services of the pure labour contract are exempt from GST as per Notification no.12/2017 dated 28th June 2017:
Note: The above exemption is not allowed if the supplier does contraction work as a whole, including labour or if such construction involves multiple units.