Applicability of GST Rate on Labour Charges in India

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June 18, 2019

GST Rate on Labour Charges

The service sector is the largest and most important sectors in India as it contributes to more than 57 percent of India’s GDP & 54.40% of total India’s GVA of 169.61 lakh crore Indian rupees. Gross Value Added (GVA) at current prices for the Services sector is estimated at 92.26 lakh crore INR in 2018-19.

All the services are hooked with GST or the goods and services tax until unless they are exempted either by law or by notifications. Prior to the GST regime, services have a different meaning, but the introduction of GST in the country led Government to give an appropriate and specific definition for the word ‘service’ in order to impose a tax on them.

The new taxation system -GST defines service as an act including money related transaction but excluding money and security itself as service. Services encompass transactions in money but do not include money and use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged. For example Supply of service by providing labour. Let’s see the brief study for GST on labour charges.

GST Application on Labour Charges in India

Let us understand more about the labour services which fall under the head labour charges under GST and which are exempted under GST.

Work contracts – A service is classified as work contract when the supplier offers service by providing labour (hired from outside) along with own materials such as cement, steel, sand, and other materials. The service involved is the Supply of both material and labour.

For instance contract for the building, construction, repair, fabrication, completion, renovation, erection, installation, fitting out, improvement, modification, maintenance, etc.

Recommended: Impact of GST Rates on Works Contract Services

Pure Labour Contract – A service is classified as Pure Labour Contract when the supplier is providing only hired labour from outside and the materials are provided by the receiver. The service involved is the Supply of only hired labour.

  • When the outside hired labour is unregistered users, then the supplier of service is liable to pay GST on reverse charges on the hired charges paid to the labour.
  • When the outside hired labour are obtained from registered agencies, then no reverse charge will be applicable. The supplier has to procure labour from registered agencies on payment of GST.

Exemptions under Pure Labour Contract

Services offered via pure labour contracts of construction under the Housing for All (Urban) Mission or Pradhan Mantri Awas Yojana and Services via the construction of a single residential unit and not as a part of a residential complex are exempted under GST regime.

Exemptions which are not Allowed under Pure Labour Contract

GST exemption is not allowed if the supplier does construction work as a whole including labour and when such construction involve various units (exceeding one dwelling unit).

GST Rate for Employment Services

18% GST Rate is applicable to Labour Services which includes Executive or retained personnel search services, Contract Staffing Services, Co-employment staffing services, Permanent placement services except for the executive search, Long- Term staffing (pay rolling) services, Temporary staffing-to-permanent placement services, Co-employment staffing services, and Other employment & labour supply services mentioned nowhere else.

Also Read: GST Impact on Employer to Employee

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