GST on Labour Charges: Find Latest GST Rates on Labour Services

The GST rate on labour charges differs based on the type of labour service and HSN codes. Usually, labour charges attract either 0% or 18% GST rates based on the type of service rendered. However, there is a provision of labour services that is exempt under GST such as services provided to government departments. Learn in detail about the GST rates on labour charges here for your awareness.

Different Types of Contract of Labour

The types of labour contracts are as follows:

1. A Contract Constituting Only Labour Services

A pure labour contract is one in which a supplier of service should not use any material while providing services under the GST system.

2. A Labour Contract Constituting Labour and Material

Under Section 2(119) of the CGST Act, 2017, the second type of labour contract is a works contract. This constitutes a composite supply including supply of both goods and services between two parties based on a contract. The labour cost and material costs are included in these services.

GST for Labour Charges

Excluding goods and services that are exempted, GST rates apply to all other goods and services supplied for taxation purposes. This includes transactions involving money but excludes money itself, securities or conversions by cash. Supply of services by providing labour further attracts a GST rate applicable.

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How Is the GST Rate Calculated on Labour Charges?

The calculation of GST on labour charges depends on the transactional value which includes other relevant expenses other than CGST, IGST and SGST. This calculation is governed under the GST Act. Here is an example of GST calculation on labour charges:

The basic amount of labour supply = ₹1,500

Service charges = 10% of ₹1,500 = ₹150

EPF = ₹12

ESI = ₹4.75

The total value of supply = Summation of all the above components = ₹1,666.75

GST amount = 18% of ₹1666.75 = ₹300.02

GST on Labour Services and their HSN Code

The tax rate (GST) on labour services varies based on the HSN code. This is highlighted in the following sections:

List of Labour Services with 0% GST Rate

Here is the list of labour services and their HSN codes with a 0% GST rate:

List of Labour Services with an 18% GST Rate

The following table illustrates the list of labour services and the HSN codes with an 18% GST rate:

GST on Labour Charges: Pre-GST vs Post-GST

The introduction of GST has resulted in a combination of taxes like excise, VAT and service tax for labour services. Here is a comparison of labour charges (price comparison) in the pre-GST and post-GST era:

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GST on Manpower Supply Services

Drivers, clerical staff, security services and housekeeping services are manpower services, attracting an 18% GST rate. This rate applies to both private and government entities. However, services provided to Panchayats, Zilla parishads and Municipalities, as per Articles 243G and 243W of the Indian Constitution, are not subject to GST.

Drivers and cleaners in the solid waste management system or government-run hostels and schools are exempt under GST.

Implications of GST on Labour Contractors

Here are two scenarios and crucial aspects elaborating on the implications of GST on labour contractors:

1. Labour Contractor Registered Under GST:

When a labour contractor is registered under GST (service provider), they need to charge GST on the supply of labour services. As a result, they can claim input tax credit on the GST paid on inputs, raw materials and services. This helps them offset the GST liability for the GST collected from clients.

2. Labour Contractor Not Registered Under GST:

When a labour contractor is not registered under GST (service supplier), the liability of GST remains with the recipient of services under the reverse charge mechanism. This indicates that the service receiver has to pay GST directly to the government rather than paying it to the contractor.

Exemption Cases of GST on Labour Charges

Here are the types of labour services under pure labour contracts that are often exempt under GST:

1. Construction of Single Residential Units:

Services of construction of single residential units that are not built in a residential complex are exempt from GST. It includes original work of construction, erection, commissioning or installation services associated with single residential units.

2. Housing for All (Urban) Mission or Pradhan Mantri Awas Yojana:

Enhancement of housing schemes under the Pradhan Mantri Awas Yojana is exempt from GST. This includes all services associated with the construction, commissioning, erection, completion, installation, maintenance and repair, installation, renovation and alteration of civil structures of individual houses.

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Conclusion

Labour charges GST rates vary for registered and unregistered labour contractors. While registered labour contractors can claim input tax credit on the GST paid on services provided, the GST burden remains with the service recipient for unregistered labour contractors. If you are a registered labour contractor, ensure you claim input tax credit to reduce your output tax liability.

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