Section 2(119)Construction

GST on Works Contract — Construction & Immovable Property

Complete guide to works contract taxation under GST including rate structure (12% vs 18%), ITC restrictions under Section 17(5)(c), TDS obligations, sub-contractor treatment, and distinction between movable and immovable property contracts.

2(119)

Section

Supply of Service

Nature

12%

Govt. Project Rate

18%

Private Rate

Yes

Composite Supply

Full

ITC Available

9954

SAC Code

2%

TDS Applicable

Works Contract Under GST — Key Provisions

Definition Under GST

Works contract is defined under Section 2(119) of CGST Act as a contract for building, construction, fabrication, erection, installation, repair, maintenance, or commissioning of immovable property where transfer of property in goods is involved.

Deemed Supply of Service

Under Schedule II Para 6(a), works contract involving immovable property is treated as supply of service. This is a composite supply where goods and services are naturally bundled.

GST Rates — Government Projects

Works contract for government entities (central/state/local), affordable housing (carpet area ≤60 sqm), and projects under PMAY attracts concessional 12% GST rate.

GST Rates — Private/Commercial

All other works contracts for private sector, commercial construction, and non-government projects attract standard 18% GST with full ITC availability.

Input Tax Credit Rules

Full ITC available for works contract services used in business. However, Section 17(5)(c) blocks ITC on works contract for construction of own immovable property (except plant & machinery).

TDS on Works Contract

Government departments and specified entities must deduct 2% TDS under Section 51 on works contract payments exceeding ₹2.5 lakh to registered suppliers.

Works Contract GST Rate Matrix

Type of Works ContractRateConditionITC
Construction of roads, bridges, railways, metro12%Government/local authorityLimited
Affordable housing (PMAY, ≤60 sqm)12%For beneficiaries under CLSSLimited
Works contract for government buildings12%Central/State/UT/local bodyLimited
Commercial construction18%Private sectorFull
Residential construction (non-affordable)18%Builder/developerFull
Repair & maintenance of immovable property18%All categoriesFull
Sub-contractor to main contractor18%Composite supplyFull
Erection & installation of plant/machinery18%Industrial projectsFull

Frequently Asked Questions

What is works contract under GST?
Under Section 2(119) of CGST Act, works contract means a contract for building, construction, fabrication, erection, installation, fitting-out, improvement, modification, repair, maintenance, renovation, or commissioning of immovable property where transfer of property in goods is involved in the execution of such contract.
What is the GST rate on works contract?
Works contract for government projects, affordable housing, and infrastructure attracts 12% GST. All other works contracts including commercial construction, private projects, and repair/maintenance of immovable property are taxed at 18% GST.
Can ITC be claimed on works contract?
ITC on works contract services received is available only when used for business purposes and NOT for construction of own immovable property. Section 17(5)(c) specifically blocks ITC on works contract for self-use construction, except for plant & machinery.
Is TDS applicable on works contract under GST?
Yes, government departments and specified entities must deduct 2% TDS (1% CGST + 1% SGST or 2% IGST) under Section 51 on works contract payments exceeding ₹2.5 lakh per contract to registered suppliers.

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