GST Rate on Labour Charges
The service sector is undoubtedly one of the most important sectors in the country as it accounts to more than 57 per cent of India’s GDP. However, the service sector has been taxed for more than two decades now.
Service was not free from legal challenges and each service had its own definition until June 2012. Now, the definition of the word ‘service’ has not been lay down explicitly but has rather been defined in different manner so that they can meet their needs.
GST or the goods and services tax has been imposed on all services unless they are explicitly exempted in the law or by notifications. Before the introduction of GST, services have always been given different meaning, but to impose tax on services, the government had to find an appropriate definition for the word ‘service’.
2. Definition of Dervice under Changed Taxation System - GST
- Services to include transactions in money but does not include money and securities;
- Services include transactions in money but does 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
- Supply of service by way of providing labour is one such example
3. Do I Charge GST on Labour in India?
Getting an understanding as how service is defined under GST Act we can per-see two instances of supply labour under GST. But at the same time it also leaves us a question whether all the labour services fall under the head labour charges under GST.
- Supply of both material and labour - The supplier is engaged in supply of labour (hired labour from outside) along with supply of own materials such as cement, steel, sand and other materials, then such service would be classified as a "works contract".
|"Works contract" means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration, commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract.|
- Supply of only hired labour – If the supplier is providing only hired labour from outside and the materials is provided by the supplier, then such contracts will be called as "pure labour contracts".
- Services provided by way of pure labour contracts 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.
- Services by way of pure labour contracts of construction, erection, commissioning, or installation of original works pertaining to a single residential unit otherwise than as a part of a residential complex.
- construction work as a whole including labour
- if such construction involve multiple units (more than one dwelling unit).
Exemptions in case of pure labour contract:
|Instances when such exemption is allowed||Instances when such exemption is not allowed|
|The exemption is not allowed if the supplier does:
4. Reverse Charge and GST on Labour Charges
In case the outside hired labour are unregistered users, then the supplier of service will have to pay GST on reverse charges on the hired charges paid to the labour.
In case the outside hired labour are procured from registered agencies, then no reverse charge will be applicable. The supplier has to acquire labour from registered agencies on payment of GST.
5. Labour Charges GST SAC Code
SAC code and GST rate for Employment services including personnel search, referral service and labour supply service.
|Service Accounting Code (SAC)||Nature of Service||GST Rate for Labour charges|
|998511||Executive or retained personnel search services||18%|
|998512||Permanent placement services, other than executive search.||18 %|
|998513||Contract Staffing Services||18%|
|998515||Long- Term staffing (pay rolling) 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%|