Works Contract Under GST

Rates for specific works contract categories can vary and change. This article is for general information and does not constitute tax advice.

What Counts as a Works Contract

Section 2(119) of the CGST Act defines it as a contract involving both a transfer of property in goods and a supply of services, for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration, or commissioning — but only where that work relates to immovable property. The same activities performed on movable property (a car repaint job, for instance) fall outside this specific definition and are taxed as an ordinary composite supply.

Always a Service, Never Split

Schedule II, paragraph 6(a) deems the entire contract a supply of service. This settled a genuinely contentious pre-GST debate over whether goods and labour components of a construction contract could be split and taxed separately; under GST, there’s a single supply, taxed as a service, at a single rate, regardless of how the contract itself allocates value between materials and labour.

Rates and ITC

18% is the general rate for most works contracts, with specific concessional rates carved out for government contracts and certain original-works categories notified separately. ITC eligibility follows the same logic covered under Section 17(5): works contract services for constructing an immovable property on one’s own account are specifically blocked, with the narrow plant-and-machinery exception applying here exactly as it does for construction generally, but a works contractor providing the service to someone else, rather than constructing on their own account, isn’t caught by that particular block.