GST Rate on Labour Charges

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Tally Solutions | Nov-20-2019

History

The service sector is undoubtedly one of the most important sectors in the country as it accounts for 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 laid down explicitly but has rather been defined in a 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 a different meaning, but to impose a tax on services, the government had to find an appropriate definition for the word ‘service’.

Definition of Service under Changed Taxation System - GST

  • Services to include transactions in money but do not include money and securities.

  • Services include 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.

  • Supply of service by way of providing labour is one such example

Do I Charge GST on Labour in India?

Getting an understanding as to how service is defined under the GST Act, we can per-see two instances of labour supply 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".

Exemptions in case of pure labour contract

Instances when such exemption is allowed

Instances when such exemption is not allowed

  • 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.

The exemption is not allowed if the supplier does:

  • construction work as a whole including labour
  • f such construction involve multiple units (more than one dwelling unit).

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.

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%

 

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