Taxation of Job work changes

Job work means outsourcing of activities by a principal manufacturer to a job worker.

XYZ of New Delhi, who is well known for its hand-woven shirts hands over the task of sewing buttons to a professional tailor, Miss K.

Parties involved in Job Work here: 

(1) Principal Manufacturer – XYZ, and 

(2) Job Worker – Miss K

What is job work?

Most of the industries today hand over a part of their processing to outsiders. In other words, Job work is nothing but the outsourcing of activities by the principal manufacturer. The work done by the job worker may either amount to manufacture or can even be a service activity. Further, a manufacturer can send his goods to a job worker at any point in time. Be it at the initial stage, the intermediate stage or even at the final stage for packing and assembling. Add to that, the principal manufacturer might send either raw materials, semi-finished goods or even finished goods to the job worker.  

What are the tax implications on the income earned by a Job worker?

Direct Tax

Income Tax

The income received by a job worker will usually be liable to tax under the head, “Profits and Gains of Business and Profession”. Section 44AD of the Income Tax Act gives an option to an eligible assessee who is engaged in an eligible business, to consider the following as business income:

Please note:

• General deductions under Section 30 to 38 are not available if an assessee is declaring his income under Section 44AD.
• However, the benefits of Section 44AD are subject to certain conditions.
• Returns will have to be filed under ITR 4.

TDS

Rate of TDS u/s 194C for Job work:

Indirect Tax

GST

Section 2(68) of the CGST Act, 2017 defines job work as ‘any treatment or process is undertaken by a person on goods belonging to another registered person’. Here, the responsibility of keeping proper accounts for inputs/capital goods solely belongs to the principal. For the purpose of job work, inputs also include the intermediate goods that arise from a treatment or process carried on the inputs of the principal or Job Worker

Points to remember:

• Any person making a taxable supply has to mandatorily register under GST even if his taxable turnover does not exceed Rs 20 lakhs. However, a recent notification exempts a job worker engaged in inter-state supply from obtaining registration.
• Exception: Jewellery, goldsmiths’ and silversmiths’ wares and other articles
• Supply of goods after completion of job work by a registered job worker shall be considered as the supply of goods by the principal. Hence, the value of goods shall not be included in the aggregate turnover of the registered job worker.
• The time limit within which the goods sent on job work should be received is:
  • Inputs – 1 year
  • Capital Goods – 3 years
  • Moulds and dyes, jigs and fixtures, or tools – No time limit.
• If any waste or scrap is generated during the job work, it is not mandatory for the job worker to send the waste and scrap back to the principal’s place of business. It can be disposed of from the job worker’s place. If the job worker is registered under GST  the job worker will pay the tax on such waste and scrap. If he /she is not registered, the principal will have to pay the applicable tax.
• Form GST ITC – 04 is a quarterly return which is to be filed by the principal by the 25th of the month immediately after the relevant quarter.