What is a Works Contract?
A work contract is a combination of service and goods movement.
Example of works contract are the construction of a new building, erection, installation of plant and machinery.
Defination Of Works Contract Under GST
Works contracts will be treated as services, with tax applied accordingly (rather than as goods or parts of goods/services).
Section 2(119) of the CGST Act, 2017 defines works contracts as:
“works contract” means a contract for construction, building, fabrication, completion, erection, fitting out, installation, improvement, modification, renovation, repair, maintenance, 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.”
A great example of a works contract is the construction of an apartment. The construction process is covered by a works contract.
Meaning Of Immovable Property
In the GST, the word “immovable property” is not specified. But according to section 3(26) of the General Clauses Act 1897.
“Immovable Property shall include land, benefits to arise out of land and things attached to the earth, or permanently fastened to anything attached to the earth”
As per Section 3 of the Transfer of Property Act 1882 “Immovable property does not includes standing timber, growing crops or grass”
Input Tax Credit For Work Contract Under GST
Input tax credit for work contract services has been limited to the receiver under Section 17(5)(c) of the CGST Act 2017 when provided for the construction of an immovable property (other than plant and machinery), unless it is an input service for further supply of work contract service.
The credit of GST paid on work contract service will be allowed only if the output is also a work contract service.
Composition Scheme Under Work Contract
Works contractors are not eligible for the composition scheme because it is considered a service under GST. Suppliers of goods are the only ones that can use the composition scheme.
Also Read – How To Opt Composition Scheme
Place Of Supply In Respect Of Works Contract
- In order to qualify for GST, a works contract must include immovable property. As a consequence, if both the supplier and the receiver are located in India, Section 12(3) of the IGST Act, 2017 regulates the place of supply. The location of the immovable property will be the source of supply.
- If the immovable property is located outside of India but both the supplier and the receiver are in India, the place of supply would be the recipient’s location under Section 12(3) of the IGST Act, 2017.
Maintenance Of Records For Work Contract
According to Rule 56 (14) of the CGST Rules, 2017, any registered individual who executes a works contract must keep separate accounts for the works contract, which must display –
- The names and addresses of the persons on whose behalf the works contract is executed;
- Description, value, and quantity (if applicable) of goods or services received for the works contract’s execution;
- The description, value, and quantity of goods or services used in the execution of the works contract (if applicable);
- The amount of money received for each contract for work; and
- Suppliers’ names and addresses from which he purchased goods or services.
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Disclaimer – Author has exercised utmost care while writing this article, but still this article may contain some error or mistake and no part of this article/writing should be construed or considered as any advice or consultancy whether professional or otherwise. The contents of this article are solely for information and knowledge.