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GST on labour charges is imposed on all services and goods, including contract labour services. With the introduction of GST for labour charges, many workers might be confused regarding how the GST rate on labour charges is applied to their work. Under the law of GST, there are different kinds of labour treaties, and the labour GST rate that is applicable on each of those vary from one another. Although the values and rates under GST keep changing with time, it is advised that you keep updated with the latest information.

Different Types of Contract of Labour

The GST rate on labour charges differs from the work that you do. Under GST, the labour contract is classified into two types and they are as follows:

 

1. A Contract That Consists of Just Two Labour Services-

Under GST on labour charges, this type of contract is known as the pure labour contract. In this type of contract, the service supplier is not allowed to use any kind of material in the service-providing process.

 

2. A Contract of Labour Consisting of Material and Labour -

This type of labour contract is called a work contract, as it is defined in the CGST Act, under Section 2(119) of 2017. Also regarded as the composite supply, it includes both goods and services in which the service division mentioned in the given contract is the administrating element among the two parties.

 

After-tax Charges Comparison on Labour

Pre-GST, VAT, service tax, and excise, were all charged based on the labour charges. However, post-GST, the three taxes were placed under GST. The comparison of price of labour GST rate of the post and pre-GST is as the following:

Particular

Pre-GST

Post-GST

Total rate (labour + material) (A)

100%

 

100%

Excise at 12.5% (B)

12.5%

-

Service tax which at 15% on (40% of 100) (C)

6%

-

VAT at 5% of A (D)

5%

-

GST at 18% of A (E)

-

18%

Total sale considered (A+B+C+D+E)

123.5%

118%

GST for Labour Charges: Application

Until and unless it is specified as exempted through any law or notification, the labour charges GST is still applicable on every service. These services include those transactions which involve money, however, don't include securities and money or conversion via cash or using any other method. GST is applied to those services in which the service is provided in the form of labour. The various other types of contract labour and the exemptions which are placed under the contract of pure works depend on several factors.

How is the Supply Value for Computing GST Rate on Labour Charges Done?

For calculation of labour charges GST rate, the value of the transaction is regarded as the total rate of supply. The value of transactions includes every duty and all taxes that are listed below except the statutues SCST, IGST, and CGST. Initially, there are lots of expenses that are borne by the recipient of the service in place of the supplier of the labour contract. All such kinds of services must be added to the total value of the supply. The charges that are considered for computing a value of GST are:

 

The basic amount of labour supply: Rs. 100

Charges of service at the rate of 10% on 100: Rs. 10

ESI: Rs. 12

EPF: Rs. 4.75

Total: Rs. 126.75

Therefore, the total amount of charged GST is: Rs. 23.8 (126.75*18%)

What is GST on Manpower Supply?

The government levies a GST of 18% for supplying manpower to a person, business or even the central or state ministry. These manpower services can be of various types such as drivers, clerical staff, data entry operators, housekeeping services, security services and so on. 

However, according to articles 243G and 243W of the Indian Constitution, you will not have to pay a GST on rendering manpower services to Panchayat or Municipality. An appropriate example would be supplying cleaning staff to Municipalities or watchman and teachers to residential schools and hostels operated by the social welfare.

GST Rate Along With the HSN Code on Labour Charges GST

GST rates on labour depend upon the nature of service based on HSN code and then you can compute the GST on labour charges. The table below states the information about the labour GST rate along with the code of HSN on labour charges.

Accounting

Nature of the Service

GST Rate on Labour Charges

998511

Retained/executive personnel search services

18%

998512

Permanent placement services

18%

998513

Contract Staffing Services

18%

998515

Long-term staffing or payroll 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%

Guidelines of GST In Case of Import of Labours

There are some special guidelines on labour charges GST rate. Those guidelines are as follows:

 

1. The Labour Contractor That is Registered below GST -

In case the supplier's agency is GST registered, the agency charges with labour GST rate for the labour supply. The agency might be also claimed as a credit of input tax for the same.

 

2. The Contractor of the Labour That Isn't Registered Below GST

If the agency that is supplying labour isn't registered in the GST section, then the receiver of the service must charge the GST under the mechanism of reverse charge.

Exemptions accessible on GST for Labour Charges

According to Notification no. 12/2017, dated June 28th, 2017, in the contract of pure labour some services are exempted from GST. Some of the exemptions that are available on GST for labour charges are as follows:

 

Services of erection/construction/installation or commissioning of any original works that are related to any single domestic unit or as a residential complex's part.

Services of erection/construction/commissioning/completion/installation/maintenance/repair/fitting out/alteration or renovation of any civil establishment or other original work that is related to an individual house led by the beneficiary for enhancement/construction which is categorized under the Pradhan Mantri Awas Yojana or housing for everyone (urban) mission.

 

Knowing how the GST on labour charges works will help you categorize your tasks under GST law. Additionally, you'll be saved from arduous penalty work. With proper knowledge, you will know about the exemptions applicable and where the GST for labour charges is not applicable. It will help you compute the supply value of the GST rate on labour charges. For further information concerning GST, you can visit Bajaj Markets.

FAQS on GST on labour charges

  • ✔️What is the GST applicable to work contracts?

    The GST applicable on different work contracts are as follows:

    • Work contracts for the government: 12%

    • Work contracts for the government involving earthwork: 5%

    • Construction work contract for house building projects: 12%

    • Providing subcontractor for construction under work contract to the Government: 12%

    • Work contracts related to construction during oil exploration: 12%

  • ✔️At what rate does pure labour contract get taxed under GST?

    Government levies a GST of 18% on a pure labour contract.

    Is GST registration and compliance required for labour contractors?

    Yes, GST registration and compliance are mandatory for labour contractors to avail Input Tax Credit. However, you will not have to pay GST if it qualifies for exemption under GST laws.