GST on Labour Charges – Rates, Applicability & Billing Guide

For Example, this May, the ABC Constructions completed the house renovation project for Mr. Sharma. All the required materials were purchased by Mr. Sharma under the guidance of the construction company. Now, the renovation had been completed, but Mr. Sharma wondered about the 18 % GST charges for labour from the construction invoice.

He enquired about this newly formed detail, but to his surprise, he learned that even labour works bear GST charges. They explained how the calculations for labour charges were made:

 This blog explores the GST on labour charges and its applicability in the realm of finance.

Types of Labour

Although the objective of labour is to work, there are still two types of labour that incorporate GST charges. They are:

• Pure Labour
• Works Contract

Pure Labour

Let’s take a medium-sized construction firm called ABC Constructions, which agreed to take the government housing project in a village in Rajasthan, under the scheme Pradhan Mantri Awas Yojana. The construction firm hires Gunal, who provides 10 labourers to construct the building, without providing any construction materials like paints, cements, and other tools.

• This kind of supply of labour for service or work is called pure labour. Now, Gunal charges ₹ 70,000 as the labour charge for a month’s work, then the construction firm can pay him immediately, without GST. How? Because this is a government scheme, which is exempt from GST.

In case if it were a private building project, then this is how the math works:

Now the question arises: why 18 % GST charge applied here? Because it is a private construction work, and ABC Constructions is also a GST-registered firm. Such a firm needs to comply with GST filings to have an Input Tax Claim (ITC).

 Works Contract

Let’s take the same construction firm, ABC Construction, to explain this. Suppose, if they are hired by Mr. Ram Kumar to construct a house, under the contract to supply labour and materials, then this is called a works contract. Here, the ABC Constructions should provide materials, along with the supply of labourers.

• After completing the project, let’s assume ABC Construction charges him ₹ 30,00,000, inclusive of labour charges and material costs. Here, the 18% GST charges are also applicable. 

Let’s see how the math works here:

The invoice should mention that the total labour cost is ₹ 35,40,000. Further, it should also mention the 18 % GST charges (₹ 5,40,000), and project cost (₹ 30,00,000) separately, for the GST filings and ITC.

Read More - GST on Security Services

HSN Code and Labour Services with GST Rates

By the GST guidelines, drafted by the GST council, the following codes for these services are allotted:

 Now let’s break down how it works in the realm of GST taxation.

1. Residential Villa – Pure Labour Service (HSN 9954 – NIL GST)

In a gated community, one of the wealthy clients of Mr. Gopal wants to build a villa. The client takes responsibility for supplying all the required goods for the construction of the villa, whereas Mr. Gopal agrees to provide only the labour for the construction of the villa.

Let’s see how Mr. Gopal charges him for the pure labour.

Mr. Gopal charges ₹ 4,00,000 to complete the construction of the villa.

Under this HSN code, Mr. Gopal cannot charge any GST rates for the labour work.

2. Farm House Renovation – Farm Labour (HSN 9986 – NIL GST)

A client who lives in Mumbai city wants to renovate his farmhouse. The client adds that the land needs to be ploughed and made ready for the next agricultural production. So Mr.Gopal provides 10 labourers to renovate the farmhouse and also to plough the land.

Here, Mr. Gopal charges ₹ 1,40,000 for 15 days of work.

Here, too, the GST taxation is not applicable.

 3. Corporate Office – Executive Staffing (HSN 9958511 – GST 18 %)

To supervise the construction of a commercial building project, the client hires Mr. Ravi, a well-reputed civil engineer from his city.

Due to his rich experience and high reputation of being a civil engineer, Mr. Ravi charges the client for ₹ 1,50,000 for one month of work.

Therefore, the 18 % GST for ₹ 1,50,000 is ₹ 1,77,000. The GST becomes applicable, as this type of labour comes under professional staffing, in the management role.

Also Read - GST on Catering Services

4. School Building – Contract Labour (HSN 998513 – GST 18 %)

Mr. Ravi takes the contract to build a government school. For this, he hired 25 contract labourers and started the construction of the school building.

Here, Ravi charges ₹ 6,00,000 for a month of construction, and includes 18 % GST, rounding the amount to ₹ 7,08,000. This charge comes under the contract staffing bill.

5. Payroll Outsourcing – Long Term Staffing (HSN 998515 – GST 18 %)

The private fintech company in Noida entrusted Ms. Kumaari to handle payroll management for their staff members for one year.

In this type of labour, Ms. Kumaari can charge at least ₹ 2,50,000. Still, the GST of 18 % needs to be added, which leads to the amount of ₹ 2,95,000.

6. Event Management Work – Temporary Staff (HSN 998516 – GST 18%)

Mr. Gopal provides 20 workers temporarily to the event management company Win World for 10 days.

Mr. Gopal can charge ₹ 60,000 for these 10 days of work. However, the 18 % GST rate also became applicable, enabling the company to pay him ₹ 70,800. Even though it is temporary work, the GST rates are also included in the salary.

7. Co-Employment – Shared Responsibility (HSN 998517 – GST 18%)

The ABC Company wants to Mr. Kumar’ BBB Company to co-employ 10 machine operators, in which both companies share their employment responsibility.

The charge for the co-employment is ₹ 2,10,000. But with the inclusion of 18 % GST, the total amount leads to ₹ 2,47,800.

Conclusion

It has become evident that almost all the labour services, whether temporary or permanent, incur 18 % of GST on the total amount. This is done to ensure transparency in claiming the ITC. The right HSN code needs to match in filing GST returns. So, the GST-registered staffing company need to comply with these rules and HSN codes, to avoid irregular filings.

FAQs

1. Is GST applicable to all kinds of labour?

Except for pure labour service and farm labour service, other types of labour attract 18 % GST.

2. What is the HSN code for contract staffing labourers?

The HSN code is 998513 for contract staffing labourers.

3. What is co-employment?

It is a kind of employment where two different companies or parties work together to complete a specific project.

4. What is a Works Contract labourer?

In this type, the labour supplies both the services and also provides the essential goods to complete a project.

5. What is the abbreviation of GST?

The abbreviation is Goods and Services Tax.
 

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