What is a works contract under GST?
Under India's GST law, a works contract is a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of immovable property in which property in goods is transferred in the course of the work.
Also called works contract service, section 2(119) CGST Act.
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Works contract (GST) in plain words
The definition is in section 2(119) of the Central Goods and Services Tax Act, 2017, and paragraph 6(a) of Schedule II to that Act treats a works contract as a supply of services. Two conditions matter: the work is on immovable property, and goods pass to the client as part of it. A contract that only supplies goods, or that works on movable property, falls outside this definition.
Why does works contract (gst) matter?
Whether a contract is a works contract decides how GST applies to every RA bill raised under it, and section 17(5)(c) of the CGST Act restricts input tax credit on works contract services used to construct immovable property, subject to the exceptions in that section. Both affect the cash a contractor keeps from each bill.
Where does works contract (gst) mislead?
This entry gives the statutory definition only and states no rate, no time of supply and no credit treatment, because those depend on the facts and have been amended. Check the current text of the CGST Act, 2017, the rate notifications and your tax adviser before applying it to a contract. This is general information, not tax advice.
What do people get wrong about works contract (gst)?
- Assuming every construction contract is a works contract
- A supply-only contract, or work on something that is not immovable property, may fall outside section 2(119). The facts of the contract decide, so ask your tax adviser.