Key Takeaways
- GST on labour charges varies, typically at 0% or 18%, depending on the service type.
- Labour contracts can involve either pure labour or both labour and materials.
- Registered labour contractors can claim input tax credits to reduce their GST liability.
- Exemptions apply to specific labour services under housing schemes or government projects.
- Unregistered labour contractors shift the GST liability to service recipients under reverse charge mechanism.
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:
- 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.
- 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.
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:
| HSN Code | Service Description | GST Rate on Labour Charges |
| 9986 | Supply of farm labour | Nil |
| 9954 | Pure labour contracts for individual house construction or projects under the Housing for All (Urban) Mission or Pradhan Mantri Awas Yojana. | Nil |
| 9954 | Pure labour contracts for commissioning for a single residential unit (not part of a residential complex) | Nil |
| 9954 | Pure labour contracts for installation for a single residential unit (not part of a residential complex) | Nil |
| 9954 | Pure labour contracts for the completion of a single residential unit (not part of a residential complex) | Nil |
| 9954 | Pure labour contracts for fitting out for a single residential unit (not part of a residential complex) | Nil |
| 9954 | Pure labour contracts for repair for a single residential unit (not part of a residential complex) | Nil |
| 9954 | Pure labour contracts for maintenance for a single residential unit (not part of a residential complex) | Nil |
| 9954 | Pure labour contracts for renovation, or alteration of a civil structure under the Housing for All (Urban) Mission or Pradhan Mantri Awas Yojana | Nil |
| 9995 | Labour for activities relating to the welfare of industrial or agriculture | Nil |
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:
| HSN code | Nature of service | GST rate for labour charges |
| 998511 | Executive/retained 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 are nowhere else classified | 18% |
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:
| Particulars | Pre-GST | Post-GST |
| Total cost (material labour) (A) | 100 | 100 |
| Excise at 12.5% (B) | 12.5 | — |
| Service tax at 15% on (40% of 100) (C) | 6 | — |
| VAT at 5% of A (D) | 5 | — |
| GST at 18% of A (E) | — | 18 |
| Total sale consideration (A+B+C+D+E) | 123.5 | 118 |
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:
- 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.
- 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:
- 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.
- 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.
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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FAQs
What is the GST rate on labour charges?
The GST rate on labour charges is either 0% or 18%, depending on the type of service provided and its HSN code. Services like those under government welfare projects or housing schemes often attract a 0% rate, while others such as staffing or manpower supply services are taxed at 18%.
What is a pure labour contract under GST?
A pure labour contract involves only the provision of labour services, with no materials supplied. These contracts may attract a 0% GST rate if they fall under specific exempted services, like construction or repair work under housing schemes or for individual residential units.
Can a labour contractor claim input tax credit (ITC)?
Yes, a registered labour contractor can claim an input tax credit (ITC) for the GST paid on materials and services used to provide the labour. This helps reduce their overall GST liability by offsetting the tax paid on inputs against the tax collected from clients.
How is GST calculated on labour charges?
GST on labour charges is calculated based on the total value of the supply, which includes labour costs, service charges, and other relevant expenses. The applicable GST rate is then charged on the total amount, usually at 18%, unless the service is exempted under GST provisions.
What happens if a labour contractor is not registered under GST?
If a labour contractor is not registered under GST, the responsibility to pay GST shifts to the service recipient under the reverse charge mechanism. This means the recipient must pay the applicable GST directly to the government rather than the contractor.
