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Guide · GST Rates

GST on Works Contract —
Now a Flat 18%

The correct GST rate for construction, renovation and installation works contracts after GST 2.0, the Section 17(5) ITC block, the plant & machinery exception, sub-contractor rules and TDS.

TaxClue Editorial Desk Updated 18 August 2026 5 min read 16 FAQs answered
Updated for GST 2.0 GST Expert Reviewed Contractors & Builders
Quick Answer

A works contract is a composite supply of goods and services for construction, renovation, installation or repair of immovable property, and is treated as a supply of service under Schedule II. After the GST 2.0 rationalisation (w.e.f. 22 September 2025), the earlier concessional 12% rate for government works contracts and their sub-contractors was withdrawn — all works contracts now attract a flat 18%. Input Tax Credit on a works contract for immovable property stays blocked under Section 17(5)(c)/(d), except for plant & machinery.

Private works 18%
Government works 18%
Plant & machinery ITC OK
Building ITC Blocked
At a glance

GST Rate on Works Contracts — Decision Table

The GST rate and recipient ITC position for every common works-contract scenario after GST 2.0. The concessional 12% column has effectively disappeared.

Works Contract TypeGST RateRecipient ITCNotes
General construction / renovation (private)18%BlockedOffices, commercial buildings, industrial civil work
Government / govt-authority works contract18%Blocked12% concession removed w.e.f. 22 Sep 2025
Sub-contractor — government project18%Yes*Follows main contract; now 18% too
Sub-contractor — private project18%Yes*Main contractor claims ITC on sub-contract
Office fit-out / interior works18%BlockedImmovable-property works — 17(5)(d)
Repair & maintenance of building18%BlockedEven minor renovation is 18%
Installation of plant & machinery18%YesP&M exception to the ITC block
Road / bridge / dam civil contract18%BlockedGovernment infra — now 18%

SAC head 9954 (construction services). Rates reflect the GST 2.0 two-slab structure effective 22 September 2025 (Notification 09/2025-CT(R)). * ITC flows within the contractor chain, not to the immovable-property owner. Confirm on the official GST portal before invoicing.

What GST 2.0 changed

The 12% Works-Contract Rate Is Gone

Before 22 September 2025, works contracts for the Central/State Government, local authorities and government entities — and the sub-contractors under them — enjoyed a concessional 12% rate under Notification 11/2017-CT(R). GST 2.0 collapsed the rate structure into two slabs and removed that 12% entry. Every works contract, government or private, is now taxed at the standard 18%.

12%

Before 22 Sep 2025 (old)

  • Government & govt-authority works contracts
  • Sub-contractors in the government chain
  • Certain infra & specified projects
  • Withdrawn under GST 2.0
vs
18%

From 22 Sep 2025 (current)

  • ALL works contracts — private & government
  • Sub-contractors at 18% as well
  • Repair, renovation & fit-out
  • One uniform standard rate
Transition trap — invoice at the right rate

For work certified or a milestone reached before 22 September 2025, the old rate (12% for qualifying government contracts) applies; for supplies on or after that date, charge 18%. Contractors still billing government clients at 12% after the cut-off are under-charging GST and will face GSTR reconciliation mismatches and demand notices.

Running a construction or contracting business? Get your rate transition and ITC checked.

Talk to a GST Expert →
The credit question

ITC on Works Contracts — What Is Blocked

A works contract is defined in Section 2(119) of the CGST Act as building, construction, fabrication, erection, installation, fitting-out, improvement, repair, maintenance, renovation or alteration of immovable property where transfer of property in goods is involved. It is a composite supply taxed as a service (Schedule II, Para 6(a)) and cannot be split into goods and service parts.

The catch for buyers is credit. Section 17(5) blocks ITC on works contracts and on goods/services used to construct immovable property on your own account:

ScenarioITC?Reason
Works contract to build / renovate your officeNoBlocked u/s 17(5)(c) — immovable property
Goods & services for own-account constructionNoBlocked u/s 17(5)(d)
Works contract for plant & machineryYesExcluded from the block — P&M exception
Sub-contract taken by a works contractorYesUsed for further supply of works contract
Repair of existing building (capitalised)NoTreated as construction — blocked

ITC is available only where the works contract is an input for a further outward works-contract supply, or where it relates to plant & machinery rather than a civil structure.

TaxClue Insight

The single biggest cost error in construction is assuming GST on a building works contract is recoverable. For an office, factory shell or warehouse it usually is not — the 18% becomes a real capital cost. Structure the contract to isolate genuine plant & machinery, where ITC survives.

Contractor chain

Sub-Contractor & Main-Contractor Rates

With the 12% concession gone, sub-contractors now charge 18% whether the ultimate project is government or private. The main contractor claims ITC on the sub-contractor's invoice because the sub-contract is an input to its own onward works-contract supply — the block bites only at the immovable-property owner.

Client / GovtAwards the works contract
→
Main contractorBills the client at 18%
→
Sub-contractorBills main contractor at 18%
→
ITC flowsMain contractor claims sub-contract ITC
Deductions

TDS on Works Contract Payments

Two separate TDS regimes can hit the same works-contract bill:

  • Income-tax TDS (Sec 194C): 2% (1% for individual/HUF payees) on contractor payments above ₹30,000 per contract or ₹1,00,000 in aggregate a year.
  • GST TDS (Sec 51): 2% (1% CGST + 1% SGST) deducted by government departments, PSUs and notified bodies on taxable contract value above ₹2,50,000.
  • Both can apply together — the deductee claims GST TDS as a credit in the electronic cash ledger.

18% ₹10,00,000 private works contract

Contract value₹10,00,000
GST @ 18%₹1,80,000
Invoice total₹11,80,000

GST TDS on the same government bill

Taxable value₹10,00,000
GST TDS @ 2%₹20,000
Net paid to contractor₹11,60,000

The ₹20,000 GST TDS is not a cost — the contractor claims it back in the cash ledger. Registration is mandatory once turnover crosses ₹20 lakh (₹10 lakh in special-category states); inter-state contractors must register regardless.

  • GST registration (GSTIN)
  • Correct 18% rate classification
  • SAC 9954 on every invoice
  • Rate-transition cut-off (22 Sep 2025)
  • ITC eligibility mapping (17(5))
  • Plant & machinery carve-outs
  • Sub-contractor invoice reconciliation
  • GST TDS (Sec 51) credit claims
  • GSTR-1 & GSTR-3B filing
  • E-way bills for material movement
  • Books & contract documentation
  • Advance / milestone GST timing
Government sourcesRates & notifications: gst.gov.in · CBIC rate finder: cbic-gst.gov.in · GST 2.0 service rates: Notification 09/2025-CT(R) (w.e.f. 22 Sep 2025) · Works-contract definition: Section 2(119) & Schedule II, CGST Act 2017 · ITC block: Section 17(5)(c)/(d), CGST Act 2017
People also ask

Frequently Asked Questions

Rates & Slabs
What is the GST rate on a works contract in 2025-26?
A flat 18%. After the GST 2.0 rationalisation effective 22 September 2025, the earlier concessional 12% rate for government works contracts and their sub-contractors was withdrawn. Every works contract — private or government, construction or renovation — now attracts 18% GST under SAC head 9954.
Is the GST rate on works contract 12% or 18%?
It is 18% for supplies on or after 22 September 2025. The 12% slab applied only to specified government and government-authority works contracts (and their sub-contractors) before that date. GST 2.0 removed the 12% entry, so there is now a single 18% rate for all works contracts.
Did GST 2.0 change the works contract rate?
Yes. The GST 2.0 reform (effective 22 September 2025) collapsed the rate structure into a two-slab system and eliminated the 12% works-contract entry. Government works contracts that were taxed at 12% now attract the standard 18%, the same as private works contracts.
What is the GST rate on a government works contract now?
18%. Works contracts for the Central or State Government, local authorities and government entities were charged 12% until 21 September 2025. From 22 September 2025 the concession was withdrawn and these contracts are taxed at the standard 18% rate like any other works contract.
What is the GST rate on office renovation or fit-out?
18%. Renovation, interior fit-out and repair of commercial premises are works contracts on immovable property, taxed at 18% whether the office is owned or leased. ITC on such works is blocked under Section 17(5) unless the property is used to make further works-contract supplies.
What is the SAC code for works contract services?
Works contract services fall under SAC heading 9954 (construction services), with the specific six-digit code depending on the nature of the work (building, civil engineering, installation, etc.). The rate on the whole composite supply is 18% after GST 2.0.
ITC & Blocked Credit
Can I claim ITC on a works contract?
Generally no. Section 17(5)(c) blocks ITC on works contract services for construction of immovable property, and 17(5)(d) blocks credit on goods and services used to construct such property on your own account. ITC is allowed only where the works contract is an input to your own further works-contract supply, or where it relates to plant and machinery.
When is ITC on a works contract allowed?
ITC survives in two situations: (1) the works contract is used to make an onward supply of works contract services — for example a sub-contract taken by a contractor; and (2) the contract is for erection, installation or commissioning of plant and machinery rather than a building or civil structure. Both are exceptions to the Section 17(5) block.
Is ITC available on installation of plant and machinery?
Yes. Plant and machinery is specifically carved out of the ITC block, so GST paid on a works contract for erecting or installing qualifying plant and machinery is creditable to the recipient. The distinction turns on whether the contract pertains to plant/machinery or to a building or civil structure.
Can a builder claim ITC on construction of a building?
A builder constructing immovable property on its own account cannot claim ITC on the works contract or input goods and services under Section 17(5)(d). ITC flows only within the contractor chain — a main contractor can claim credit on a sub-contractor's invoice because it makes a further works-contract supply — but the ultimate property owner cannot.
Sub-Contractors
What GST rate does a sub-contractor charge now?
18%. With the 12% concession removed by GST 2.0, sub-contractors charge 18% whether the ultimate project is government or private. The main contractor can claim ITC on the sub-contractor's 18% invoice because the sub-contract is an input to its own onward works-contract supply.
Does the sub-contractor rate follow the main contract?
Since 22 September 2025 the question is largely moot — both main contractor and sub-contractor charge 18% regardless of whether the client is government or private. Before that date, a sub-contractor in a qualifying government works chain could charge 12%, matching the main contractor; that concession no longer exists.
Compliance & TDS
Is a works contract a composite supply or a mixed supply?
A works contract is a composite supply where the principal supply is the service element (construction or installation), and it is expressly classified as a supply of service under Schedule II, Para 6(a) of the CGST Act. It cannot be split into goods and service components; the whole consideration attracts the single 18% works-contract rate.
What is the TDS rate on works contract payments?
Two regimes can apply. Under Income-tax Section 194C, TDS is 2% (1% for individual/HUF payees) on contractor payments above ₹30,000 per contract or ₹1,00,000 a year. Under GST Section 51, notified government bodies and PSUs deduct 2% (1% CGST + 1% SGST) on taxable contract value above ₹2,50,000. Both can apply to the same bill.
Does an AMC or maintenance contract count as a works contract?
It depends on the goods content. A pure-labour service contract with no significant supply of goods is a service, not a works contract. If the contract materially involves replacing parts (goods) plus labour on immovable property as an integrated composite supply, it is a works contract taxed at 18%. Classification turns on the specific terms and the proportion of goods involved.
When must a works contractor register for GST?
Registration is mandatory once aggregate turnover crosses ₹20 lakh in a financial year (₹10 lakh in special-category states). A contractor making inter-state supplies, or supplying to government bodies that deduct GST TDS, may need to register regardless of turnover. Voluntary registration is allowed below the threshold to claim ITC in the contractor chain.
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