The construction sector will be affected significantly by GST. One change is that The GST Council has announced a fitment rate on Works Contract Service under Goods & Services Tax (GST). The composite supply of Works Contract as defined in clause 119 of section 2 of CGST Act is 18%. Full Input Tax Credit credit is allowed.

Below are some FAQs relating to the Works Contract.

Q1. What is Works Contract?

“Works Contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or 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; [Section 2 (119) of the CGST Act, 2017].

Q2 : Whether Works Contract is considered as Supply of Goods or Supply of Services?

The Works Contract Service is a Composite Contract however for the purpose of GST laws, it will be treated as Supply of Services; [Para 6 (a) of the Schedule II of the CGST Act, 2017]

Q3 : Can the recipient of Works Contract Service claim Input Tax Credit (ITC) on the Works Contract Service?

No – Input Tax Credit cannot be claimed by the recipient of works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service; [Section 17 (5) (c) of the CGST Act, 2017].

Q4 : Is there any reverse tax liability under GST on Recipient of Works Contract Service?

Ans : No – Works Contract Sxrvice is not included in the List of Services under Reverse Charge mechanism under the GST Regime.

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