GST ON WORKS CONTRACT & TDS PROVISIONS – COMPREHENSIVE GUIDE

Office Memorandum – Cover Letter

• Subject: Comprehensive guideline regarding GST on Works Contract services and TDS provisions.
• Background: After enactment of OGST Act, 2017 w.e.f. 01.07.2017, multiple advisories/guidelines/clarifications have been issued. Since the Act/Rules/Rates have been amended several times, various Departments/HoDs have been seeking clarification on updated provisions.
• Issuance: After careful consideration of the issues faced, Finance Department has issued comprehensive and updated Standard Operating Procedure on Works Contract Services (Annexure-A) and on TDS provisions (Annexure-B), for reference only.
• Further Clarification: In case of any further clarification, the Administrative Department may refer the proposal with details to Finance Department.
• Issued By: Principal Secretary, Finance Department, Government of Odisha.

Annexure-A: GST on Works Contract – Key Provisions

• Definition of Works Contract (Sec 2(119)): 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 is involved. Works contracts for movable property are not covered under this definition.
• Treatment as Supply of Service: As per Para 6(a) of Schedule II to the Act, works contracts shall be treated as a supply of services.
• Maintenance of Records: Every registered person executing works contract shall keep separate accounts for works contract as per Rule 56(14) of CGST/OGST Rules, 2017.
• E-Invoicing: Applicable to registered persons whose turnover exceeds prescribed thresholds (₹5 Cr to ₹500 Cr). As clarified vide Circular No. 198/10/2023-GST, e-invoicing is required for supplies to Government Departments, agencies, local authorities, and PSUs.
• Time of Supply: Liability arises at the earliest of: date of issue of invoice (within 30 days), date of receipt of payment, or date of entry in recipient's books. Works contract is treated as continuous supply of service under Section 2(33).
• Place of Supply: Governed by Section 12(3) of IGST Act – where the immovable property is located. If property is outside India and both supplier and recipient are in India, place of supply is the location of the recipient.
• Registration Requirement: Registration is required in the State from where the supply is made. In works contract, if the supply is made from the project site in a State, registration is required in that State. The Odisha AAR in Konkan Railway Corporation case held that the supplier's location is the project site and registration in Odisha is mandatory.
• Valuation: Normal valuation is the contractual value. Where transfer of land is involved, value of land is deemed to be one-third of the total amount charged (as per Notification No. 11/2017-CT(Rate)).
• Applicable GST Rate: Majority of works contracts attract 18% GST w.e.f. 22.09.2025. For Government works: Earthwork (>75%) – 12%; Other infrastructure works – 18% (post 18.07.2022). For Governmental Authority/Entity works: Earthwork – 12%; Other works – 18% (post 18.07.2022).
• ITC on Works Contract: Input Tax Credit is not available for works contract services supplied for construction of immovable property (other than plant and machinery), except where it is an input service for further supply of works contract service. ITC is available for works contract on plant and machinery.

GST Rates on Works Contract – Category 1 (Central/State Govt & Local Authority)

GST Rates on Works Contract – Category 2 (Governmental Authority & Government Entity)

Annexure-B: TDS Provisions under GST – Key Provisions

• Tax Deductor: TDS is mandated under Section 51 of CGST/SGST Act, 2017 and Section 20 of IGST Act, 2017, effective from 01.10.2018. TDS is not required from one PSU to another or from one TDS Authority to another (as per notifications).
• Responsibilities of DDO: Guidelines for deduction and deposit of TDS by DDO are laid down in CBIC Circular No. 65/39/2018-DOR dated 14.09.2018 and Finance Department Memo No. FIN-CT1-TAX-0045-2017/30797/F dated 25.09.2018.
• When TDS is Required: Tax is to be deducted in accordance with Section 51(1) of the Act. The amount deducted shall be paid to the Government as mandated under Section 51(2), read with Rule 85(4) of CGST/OGST Rules.
• Valuation for TDS: The value of supply for TDS deduction shall exclude GST (Central Tax, State Tax, UT Tax, Integrated Tax & Cess). TDS is not deducted on exempted goods or services.
• Rate of TDS Deduction: @ 2% (1% CGST + 1% SGST) for Intra-State supply; @ 2% (as IGST) for Inter-State supply. TDS is deducted on the invoice value excluding GST but including other statutory levies (EPF, ESIC, etc.).
• Registration of Deductor: Section 24(vi) provides for compulsory registration for TDS deductors. Registration is done through www.gst.gov.in using PAN/TAN.
• TDS Return (GSTR-7): Every registered TDS deductor must file FORM GSTR-7 electronically on or before the 10th of the month succeeding the month in which deductions were made.
• Late Fees: For late filing of GSTR-7, late fee of ₹100 per day (under CGST and SGST separately) subject to maximum ₹5,000 each. For nil GSTR-7, no late fee applies. Total late fee capped at ₹1,000 for GSTR-7 from June 2021 onwards.
• Certificate of Deduction: The deductor shall issue a certificate of deduction in FORM GSTR-7A to the supplier.
• Legal References: Detailed legal references are provided in the SOP covering Sections 51, 24, 25, 39, 47, 50, 54, 73, 74, 122, Rules 12, 22, 66, 85, 87, and Forms GST REG, GSTR-7, GSTR-7A, GST PMT, DRC.

TDS Rate of Deduction

Note: If TDS is not being deducted at 2% under IGST in inter-state transactions, it may lead to incorrect reporting in GSTR-1 and GSTR-3B, and Odisha will lose its share in IGST settlement.

TDS Illustrations – Valuation of Supply for Deduction

• Example 1 – Supplier Registered, Contract Value Excluding GST: Supplier X makes taxable supply of Rs. 10,000 to a Municipality (contract value Rs. 15 Lakh, GST 18%, intra-State). Invoice: Rs. 10,000 + Rs. 900 CGST + Rs. 900 SGST. Value of supply = Rs. 10,000. TDS: CGST @1% = Rs. 100; SGST @1% = Rs. 100. Payment due after TDS = Rs. 11,600.
• Example 2 – Supplier Registered, Contract Value Including GST (Intra-State): Supplier Y of Odisha supplies taxable worth Rs. 20,000 + exempted worth Rs. 30,000 in an invoice to Revenue Department (contract: Rs. 10 Lakh, 18% GST). Taxable value of contract = Rs. 6,00,000 including GST = Rs. 5,08,475 excluding GST (>Rs. 2.5 Lakh, so TDS applies). Current taxable supply excluding GST = Rs. 16,949. TDS: CGST @1% = Rs. 169; SGST @1% = Rs. 169. Total TDS = Rs. 338.
• Example 3 – Supplier Registered, Contract Value Including GST (Inter-State): Supplier X of Odisha supplies to Ministry of Finance, New Delhi. Contract: Rs. 6,00,000 (taxable supply incl. GST = Rs. 2,60,000). Value excluding GST = Rs. 2,20,340 (< Rs. 2.5 Lakh). No TDS is required.
• Example 4 – Supplier Registered under Composition Scheme: Supplier Z (composition scheme in Odisha) makes taxable supply of Rs. 10,000 to a Local Authority (contract value Rs. 2,55,000). Since contract value exceeds Rs. 2.5 Lakh, TDS is required.