J K Varghese & Co

GST PROVISIONS ON CONTRACTS

For Construction of Building, bridges and Road, rate under GST is 18%. Input tax credit is available. Provisions are covered under schedule II(6) of CGST Act 2017 and Section 2(119) of the CGST Act, 2017 under the definition of works contract service. The rates are mentioned under the circular number 11/2017 dated 28.6.2017.

Other provisions relating to contract work are as under:-

1. There is no exemption on contracts for Road, bridges, Canal, Dam, Pipeline for water supply, or water treatment under the provision of GST. The tax rate is 18%. For such work service tax was exempted upto June 2017. If the contract was entered into before March 2015, construction was carried out for Hospital, School, and College (which are not for profit) service tax exemption was available till June 2016.

2. For Construction of Churches, temples etctax rates at 18%. Under earlier provision on the basis of circular number 25/2012 all religious Institutions which are having 12A registration exemption from Service tax was available till June 2017.

3. If you are constructing a house or a villa, the contractor must pay 18% GST. Under service tax exemption was available only till June 2017. Under circular number 13/2017 CGST only pure labour contracts are exempted under GST.

4. There is no provision under GST for paying GST under composition scheme for works contract which was earlier allowed under MVAT & Service tax law. Even if your turnover is less than 75 lakhs then also no composition scheme is available as the works contract is considered as supply of service and not as a supply of goods.

5. No reverse charge mechanism is applicable hence forth. Earlier provision which were applicable for Individuals and partnership firms in which the company which gives the contract used to give 50% of the tax and the balance 50% the contractors who were individuals and partnership paid. This will go away after 30^th June, 2017. The contractor must pay the entire tax. There is no tax liability for the company which gives the contract.

6. Manpower supply, security services contracts there is no reverse charge.

7. Earlier in MVAT law, the dealer used to deduct TDS on works contract @2%. Now this has been dispensed with in GST regime.

8. If a Builder takes money for the construction and sale of an apartment in a residential complex and if the instalment is collected as per the contract before getting completion certificate, then 12% GST is payable for each instalments. (if the land is belonging to the builder then this rate will go to 18%). Circular number 11/2017 CGST specifies that 1/3^rd value of the cost is to be considered as land cost and on the balance amount 9% is to be CGST to be paid(9% CGST and 9% SGST together is 18%) It means the GST will be 12% if the 1/3^rd portion of the land is reduced.

9. All contactorsneeds to file returns monthly. GSTR-1 is the form to be filed. Invoice number, service accounting code should be mentioned in the return. If any money received in advance GST is to be paid for such money. Before 10^th of next month return to be submitted. On the basis of return filed by the supplier (GSTR-2) the computer will pick up the input tax credit available to the contractor. If the supplier not filed the return, then the contractor will not get the credit for the input tax credit. There are provisions of rectifying the mistakes but the supplier has to accept the same, otherwise it will be treated as mismatch.

10. There is no provision for reducing the subcontract amount by the main contractor. The amount paid as GST to a subcontractor can take as input credit, provided the subcontractor filed his return in form GSTR-1 before 10^th of next month.

11. GST is applicable for rentals of Plant and Machinery. What is the applicable rate for such machinery, that rate is to be charged while giving on rent or lease. For example, for road roller, Excavator, bulldozer the rate is 28%. Same rate to be charged for renting or leasing such equipment. If the person who has given the equipment files his return then only the input tax credit will be available to the contractor.

12. As per GST provision, payment of GST has to be made on monthly basis as against quarterly basis in service tax in case of individual and partnership.

13. The Place of Supply in relation to immovable property as per Section 12(3) of the IGST Act, 2017 shall be the location where immovable property located.

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