Ask me anything about GST, Income Tax, Company Registration, Trademark, or any compliance topic. I'll give you a direct answer.
Free Expert Consultation
Powered by TaxClue · India's Trusted Compliance Platform
GST on Works Contract — Rates, ITC & Sub-Contractor Rules
Updated: 3 June 2026 | CGST Act, 2017 — Schedule II & Notification 11/2017 | Verified against CBIC circulars
A works contract under GST is a composite supply involving both goods and services — such as construction, renovation, installation, or erection of immovable property. The standard GST rate is 18% for most works contracts. The rate reduces to 12% for works contracts undertaken for government entities and certain specified categories. ITC on works contracts for immovable property used personally or for exempt purposes is blocked under Section 17(5)(c)/(d).
18%
Standard GST rate on most works contracts — construction, renovation, fitout 12% for government works contracts | ITC blocked for immovable property recipients
⚠
ITC Blocked — Section 17(5)(c)/(d). A recipient of works contract services for construction/renovation of immovable property cannot claim ITC unless: (a) the property is used for further supply of works contract services, or (b) it is plant/machinery. This blocked credit rule applies to both the principal and sub-contractor chain for property construction.
What is a Works Contract Under GST?
Section 2(119) of the CGST Act, 2017 defines a works contract as a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration, or commissioning of any immovable property wherein transfer of property in goods (as goods or in some other form) is involved in the execution of such contract.
Key characteristics:
Composite supply — both goods and services involved
Specified government entities; sub-contractor also 12%
Affordable housing — government scheme (PMAY etc.)
12%
Blocked for recipient
Construction of affordable residential apartments under govt scheme
Other residential construction (private)
18%
Blocked (Sec 17(5))
Private bungalows, apartments not under govt scheme
Installation of plant and machinery
18%
Allowed (plant/machinery)
ITC allowed for recipient under Sec 17(5) exception
Sub-contractor — for government works
12%
Allowed at contractor level
Rate follows main contract; must be for same govt project
Sub-contractor — for private works
18%
Blocked for end-recipient
Same rate as main contractor applies
Repair and maintenance (immovable property)
18%
Blocked (Sec 17(5))
Renovation/repair works attract 18% even if minor
ITC Rules for Works Contract — What is Blocked?
ITC BLOCKED — Sec 17(5)(c)
Works contract services for immovable property (used personally)
ITC on works contract services received for construction of an immovable property (other than plant/machinery) is blocked. This means a business that hires a contractor to construct or renovate its office building cannot claim GST paid as ITC — unless the same business is itself in the works contract business (i.e., supplies works contracts onward).
ITC BLOCKED — Sec 17(5)(d)
Goods and services for construction of immovable property on own account
GST paid on goods and services used in construction of immovable property on own account (even if used for business) is blocked. Applies even to commercial property owners. Construction of a factory building, office block, or warehouse by the owner does not allow ITC claim on works contract cost.
ITC ALLOWED — Plant & Machinery Exception
Works contract for installation of plant and machinery
Works contracts for erection, commissioning, installation, or fitting of plant and machinery are specifically excluded from the ITC block. If a manufacturer installs industrial equipment (which qualifies as plant/machinery) under a works contract, the GST paid is creditable. The key is whether the contract pertains to plant/machinery vs building/civil structure.
Composite vs Mixed Supply — Classification
Works contract is a composite supply where the principal supply is the service element (construction/installation). It cannot be artificially split. The entire consideration attracts the applicable works contract GST rate (12% or 18%). A mixed supply would attract the rate of the highest-taxed component — but works contracts are expressly classified as composite supplies under Schedule II, Para 6(a) of the CGST Act.
TDS on Works Contract (Income Tax): Under Section 194C of the Income Tax Act, TDS at 2% is deductible on payments to contractors (including works contractors) if the payment exceeds ₹30,000 per contract or ₹1L in aggregate per year. This is separate from GST. Under GST, specified government entities must deduct GST TDS at 2% on payments above ₹2.5L. Both deductions can apply to the same works contract simultaneously.
Frequently Asked Questions
What is the GST rate on office renovation works contract?
GST on renovation/repair works contract for commercial premises (offices) is 18%. This applies whether the office is owned or leased. The 12% rate applies only to specific government works contracts and certain affordable housing projects. ITC (Input Tax Credit) on a works contract for construction or renovation of immovable property is blocked under Section 17(5) unless the property is being used for further supply of works contract services or as plant/machinery.
Is new construction different from repair/maintenance for GST works contract?
Yes. Both new construction and repair/maintenance works contracts attract 18% GST under the standard rate (unless qualifying for the 12% government category). However, for ITC purposes, the distinction matters: ITC on works contract for construction of an immovable property is blocked for the recipient (if used for personal/exempt purposes). Works contracts for repair and maintenance of plant and machinery (not buildings) may allow ITC. Always check Section 17(5) of CGST Act.
Does a maintenance contract (annual maintenance contract/AMC) qualify as a works contract?
A pure service contract — like an AMC covering only labour/repair with no significant supply of goods — may be classified as a pure service and not a works contract. A works contract requires both supply of goods and services as an integrated composite supply. If the AMC involves replacement of parts (goods) + labour (service), it likely qualifies as a works contract at 18%. If it is purely a service (no goods), it is taxed as a service at applicable rates. Classification depends on the specific terms and proportion of goods involved.
What is the TDS rate on works contract payments?
Under the Income Tax Act, TDS is deducted at 2% under Section 194C on payments to contractors (including works contractors) exceeding ₹30,000 per contract or ₹1,00,000 in aggregate in a financial year. This TDS is separate from GST TDS. Under GST, TDS at 2% (1% CGST + 1% SGST) is required to be deducted by specified persons (government departments, PSUs, local authorities) on payments above ₹2,50,000. Both IT TDS and GST TDS can apply simultaneously to the same works contract payment.
Can a sub-contractor charge a lower GST rate than the main contractor?
A sub-contractor supplying services to the main contractor for a government works contract can charge 12% GST — the same rate as the main contractor — provided the main contract is for a government entity qualifying for 12% rate. If the main contract does not qualify for 12% (i.e., it is a private contract at 18%), the sub-contractor must also charge 18%. The sub-contractor rate follows the nature of the ultimate supply. CBIC circulars have clarified that the concessional 12% rate is available to sub-contractors in the government works chain.
