Works Contract under GST : Analysis

By | July 26, 2017
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(Last Updated On: July 26, 2017)

Works Contract under GST

Work Contract under GST (Goods and Service Tax Act) of India : analysis in detail is as follow :

Definition of Works Contract

Works Contract” is defined in Section 2 (119) of CGST Act:

“Works Contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alternation or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in execution of such contract

Thus Works Contract has four major components as:

1.There should be a contract

2.For building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alternation or commissioning

3.Immovable Property

4.Transfer of Property in Goods

Scope of Supply

Point 6 of Schedule II of CGST Act 2017 specifies that works contract is treated as Supply Of Service.

Tax Rate in Works Contract

Works contract as defined in clause 119 of section 2 of CGST/SGST Act attracts rate of 18% with full ITC

Input Tax Credit (ITC)

Input Tax

Input Taxes are taxes that you pay when you purchase materials (Goods) or services or both for furtherance of your business.

ITC:

A registered person is entitled to take credit of input tax (ITC) charged on supply of goods or services or both procured by him.

  • ITC also allowed on Capital Goods
  • ITC not allowed  for the goods and services for personal use
  • ITC to be allowed in course or furtherance of Business
  • ITC is not eligible under certain situation such as mentioned in section 17 of CGST Act, 2017.

Works Contract under GST

Time of Supply of Service

Time of Supply of service  as per Section 13 (2) of CGST Act :

  • If the invoice is issued within the prescribed time limit (within 30 days of supply), the time of supply of services shall be the date of issue of invoice by the supplier or the date of receipt of payment whichever is earlier
  • If the invoice is not issued within 30 days of supply, the time of supply of service shall be the date of provision of service or the date of receipt of payment, whichever is earlier.

Works Contract – Transitional Provision

Service provided before applicability of GST (As per section 14 of CGST Act ):

  • If invoice issued before GST regime but payment received under GST regime, the Time of supply shall be the date of issue of invoice. Ex: If the Bill is issued by the contract on or before 30th June 2017 and payment is received in the month of July then the VAT provisions will be applicable on such bills.
  • If invoice issued and payment received under GST regime, the Time of supply shall be the date of invoice or the date of payment receipt, whichever is earlier (GST Provisions will be applicable in such bills)

Registration

As per section 22 every supplier who makes a taxable supply of services in the State and If his aggregate turnover in a financial year exceeds 20 Lakh Rupees (in the entire country under single PAN), he shall be liable to be registered under this section.

Compulsory Registration

  • As per section 24 a person making any inter state taxable supply or required to pay tax under reverse charge basis shall also be required to get registered at the time of 1st such supply irrespective of his aggregate turnover.
  • Whenever he becomes liable under section 22 or section 24  he has to apply for registration within 30 days.
  • Registration for DDOs will start from 25th July,2017

Composition Scheme

Under GST, Composition scheme is not applicable to service provider except Restaurant and hence Composition Scheme not applicable to works contract.

Tax Invoice for Works Contractor

Issuance of Tax Invoice(section 31)

  • A registered works contractor supplying taxable services shall issue a tax invoice showing 16 particulars prescribed under rule 46.
  • The said tax invoice shall be issued before or after the provision of services but within a period of 30 days from the date of the supply of service under rule 47

All invoice under GST must have the following information

1.Name, address and GSTIN of the supplier

2.Tax invoice number (it must be generated consecutively and each tax invoice will have a unique number for that financial year)

3.Date of its issue

4.If the buyer (recipient) is registered then the name, address and GSTIN of the recipient

5.If the recipient is not registered AND the value is more than Rs. 50,000 then the invoice should carry:

a) Name and address of the recipient

b) address of delivery

c) state name and state code

6.HSN code of goods or accounting code of services**

7.Description of the goods/services

  1. Quantity of goods (number) and unit (metre, kg etc.)

Since in case of works contract, it is supply of services so Quantity in such cases is not required.

  1. Total value of supply of goods/services
  2. Taxable valueof supply after adjusting any discount
  3. Applicable rate of GST (Rates of CGST, SGST, IGST, UTGST and cess clearly mentioned)
  4. Amount of tax(With breakup of amounts of CGST, SGST, IGST, UTGST and cess)
  5. Place of supply and name of destination state for inter-state sales
  6. Delivery address if it is different from the place of supply
  7. Whether GST is payable on reverse charge basis
  8. Signature of the supplier.

Tax Invoice Format only for Work Contractor

Tax Invoice Format only for Work Contractor Works Contract under GST

Related GST on Works Contract : Kerala Govt Advisory

Related Topic on GST

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