GST on Labour Charges in India

GST will be levied on manpower and related services supplied to an individual or business. This can include labour and manpower services such as data entry operators and other clerical services, security and related services, driving services, housekeeping services, etc. The GST on labour charges currently stands at 18%.

The GST rate on labour charges differs from the work that you do. Under GST, the labour contract is classified into two types and they are as follows:

 

1. A Contract That Consists of Just Two Labour Services-

Under GST on labour charges, this type of contract is known as the pure labour contract. In this type of contract, the service supplier is not allowed to use any kind of material in the service-providing process.

 

2. A Contract of Labour Consisting of Material and Labour -

This type of labour contract is called a work contract, as it is defined in the CGST Act, under Section 2(119) of 2017. Also regarded as the composite supply, it includes both goods and services in which the service division mentioned in the given contract is the administrating element among the two parties.

 

3. After-tax Charges Comparison on Labour

Pre-GST, VAT, service tax, and excise, were all charged based on the labour charges. However, post-GST, the three taxes were placed under GST. The comparison of price of labour GST rate of the post and pre-GST is as the following:

Until and unless it is specified as exempted through any law or notification, the labour charges GST is still applicable on every service. These services include those transactions which involve money, however, don't include securities and money or conversion via cash or using any other method. GST is applied to those services in which the service is provided in the form of labour. The various other types of contract labour and the exemptions which are placed under the contract of pure works depend on several factors.

For calculation of labour charges GST rate, the value of the transaction is regarded as the total rate of supply. The value of transactions includes every duty and all taxes that are listed below except the statutues SCST, IGST, and CGST. Initially, there are lots of expenses that are borne by the recipient of the service in place of the supplier of the labour contract. All such kinds of services must be added to the total value of the supply. The charges that are considered for computing a value of GST are:

 

The basic amount of labour supply: Rs. 100

Charges of service at the rate of 10% on 100: Rs. 10

ESI: Rs. 12

EPF: Rs. 4.75

Total: Rs. 126.75

Therefore, the total amount of charged GST is: Rs. 23.8 (126.75*18%)

The government levies a GST of 18% for supplying manpower to a person, business or even the central or state ministry. These manpower services can be of various types such as drivers, clerical staff, data entry operators, housekeeping services, security services and so on. 

However, according to articles 243G and 243W of the Indian Constitution, you will not have to pay a GST on rendering manpower services to Panchayat or Municipality. An appropriate example would be supplying cleaning staff to Municipalities or watchman and teachers to residential schools and hostels operated by the social welfare.

GST rates on labour depend upon the nature of service based on HSN code and then you can compute the GST on labour charges. The table below states the information about the labour GST rate along with the code of HSN on labour charges.

There are some special guidelines on labour charges GST rate. Those guidelines are as follows:

 

1. The Labour Contractor That is Registered below GST -

In case the supplier's agency is GST registered, the agency charges with labour GST rate for the labour supply. The agency might be also claimed as a credit of input tax for the same.

 

2. The Contractor of the Labour That Isn't Registered Below GST

If the agency that is supplying labour isn't registered in the GST section, then the receiver of the service must charge the GST under the mechanism of reverse charge.

According to Notification no. 12/2017, dated June 28th, 2017, in the contract of pure labour some services are exempted from GST. Some of the exemptions that are available on GST for labour charges are as follows:

 

Services of erection/construction/installation or commissioning of any original works that are related to any single domestic unit or as a residential complex's part.

 

Services of erection/construction/commissioning/completion/installation/maintenance/repair/fitting out/alteration or renovation of any civil establishment or other original work that is related to an individual house led by the beneficiary for enhancement/construction which is categorized under the Pradhan Mantri Awas Yojana or housing for everyone (urban) mission.

 

Knowing how the GST on labour charges works will help you categorize your tasks under GST law. Additionally, you'll be saved from arduous penalty work. With proper knowledge, you will know about the exemptions applicable and where the GST for labour charges is not applicable. It will help you compute the supply value of the GST rate on labour charges. For further information concerning GST, you can visit Bajaj Markets.