GST Rate on Works Contracts
Construction and works contract services attract 18% GST under SAC 9954. Pure labour-only contracts may qualify for 18% with limited input credit. Composite works contracts (material + labour) supplied to government/PSU projects may fall under reverse charge mechanism (RCM).
Reverse Charge Mechanism (RCM)
When a registered EPC contractor subcontracts to another registered contractor, forward charge applies — subcontractor invoices with GST. When subcontracting to unregistered persons, the principal contractor bears RCM liability. Government works contracts often trigger RCM on the recipient.
Input Tax Credit Restrictions
ITC is available on GST paid for business inputs. However, works contract services used for immovable property (other than plant & machinery) face ITC restrictions under Section 17(5)(c). Subcontractors should maintain clear invoicing separation between civil works, equipment supply, and O&M services.
Recent AAR Rulings (2024–25)
Key Advance Rulings affecting civil subcontractors: classification of piling vs foundation works (9954 vs 9959), GST on transportation of own equipment to site (exempt if part of works contract), and treatment of security deposits in taxable value.
Compliance Checklist for Subcontractors
Register under GST if turnover exceeds ₹20 lakh (₹10 lakh special category states). Issue tax invoices with SAC code, HSN for materials, and correct place of supply. File GSTR-1 and GSTR-3B monthly. Maintain project-wise revenue recognition for audit readiness.