Labour services like construction work, housekeeping, and security are essential for many businesses. With the introduction of GST, these services now fall under a single tax system. Whether it’s just manpower or a mix of manpower and materials, understanding how GST applies is important for smooth business operations. This guide breaks down how GST works for labour charges, the types of labour contracts, applicable tax rates, exemptions, and more.
What Are Labour Charges Under GST?
Labour charges refer to the cost paid for hiring manpower—like cleaners, construction workers, or factory helpers. Under GST, these are treated as supply of services. If a service provider crosses the GST registration threshold, they need to charge GST on such services. Labour services can either be:
- Pure labour contracts – Only manpower is provided; no materials involved.
- Composite or works contracts – Labour + materials (like cement, bricks, tools).
Types of Labour Contracts Under GST
- Pure Labour Contract
The contractor only provides workers. Materials are arranged by the person hiring them.
Example: A builder hires workers from a contractor but buys cement and bricks separately.
GST may apply depending on the service and exemptions. - Works Contract
The contractor supplies both labour and materials.
Example: A contractor is hired to complete an entire building project, including providing materials and tools.
GST is charged on the total contract value. The rate depends on the type of work.
Labour Charges: Before vs. After GST
Particulars | Pre-GST (₹) | Post-GST (₹) |
Total Cost (Material + Labour) | 100 | 100 |
Excise Duty (12.5%) | 12.5 | — |
Service Tax (15% on 40% of value) | 6 | — |
VAT (5%) | 5 | — |
GST (18%) | — | 18 |
Total Cost | 123.5 | 118 |
GST replaced multiple indirect taxes, making tax calculation simpler and more transparent.
GST Exemptions on Labour Services
Some labour services are exempt from GST:
- Construction of a Single House
If a contractor supplies only labour (no materials), GST is not applicable for building a single residential unit outside a housing project. - Government Housing Schemes
Labour-only services under PM Awas Yojana and Housing for All (Urban) are exempt from GST. - Agricultural & Industrial Labour
Labour services used in farming or industry (e.g., soil preparation, factory cleaning) are GST-free to support small businesses and farmers.
HSN Codes and GST Rates for Labour Services
Once registered, service providers must charge GST based on the correct HSN code:
HSN Code | Type of Service | GST Rate |
998511 | Executive Search Services | 18% |
998512 | Permanent Placement Services | 18% |
998513 | Contract Staffing | 18% |
998515 | Long-Term Staffing / Payroll | 18% |
998516 | Temp-to-Permanent Staffing | 18% |
998517 | Co-Employment Staffing | 18% |
998518 | Other Labour Supply Services (not elsewhere classified) | 18% |
How to Calculate GST on Labour Charges?
Let’s say:
- Base labour charges = ₹100
- Service fee (10%) = ₹10
- EPF contribution = ₹12
- ESI contribution = ₹4.75
- Total Taxable Value = ₹126.75
- GST (18%) = ₹22.82
Total Bill = ₹126.75 + ₹22.82 = ₹149.57
This ensures all related expenses are included in GST, making billing and compliance easier.
GST Rules for Labour Contractors
- Registered Contractors
- Must charge GST on services.
- Can claim Input Tax Credit (ITC) on inputs used to deliver services.
- But cannot claim ITC on works contracts used to build immovable property unless used for another works contract.
- Unregistered Contractors
- Reverse Charge Mechanism (RCM) applies.
- The person receiving the service pays the GST directly to the government.
Final Thoughts
GST has brought clarity and uniformity to how labour charges are taxed in India. It clearly defines responsibilities for both contractors and clients. By understanding contract types, tax rates, and exemptions, businesses can stay compliant and avoid penalties.
If the rules seem complex, expert help can simplify the process. Expert Mantra offers trusted assistance with GST registration, compliance, invoicing, and reverse charge guidance—helping you focus on your core business operations.
