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Works Contract Is Goods or Services under Gst

The implementation of the Goods and Services Tax (GST) in India has brought about many changes in the taxation system. One of the most debated topics under GST is whether works contract is goods or services. The classification of works contract plays a crucial role in the determination of the taxability of the transaction. In this article, we will discuss the concept of works contract under GST and its classification as goods or services.

Works Contract under GST

A works contract is an agreement between a contractor and the recipient for the transfer of property in goods and services. It is an agreement where both goods and services are involved. Works contract can be broadly classified into two types – composite supply and mixed supply.

Composite Supply

When a contract involves the supply of both goods and services, and the value of goods supplied is higher than the value of services supplied, it is considered a composite supply. The goods and services cannot be separated, and they are viewed as a single supply. The tax rate applicable to the composite supply will be the same as the tax rate applicable to the goods supplied.

Mixed Supply

When a contract involves the supply of both goods and services, and the value of goods supplied is equal to or less than the value of services supplied, it is considered a mixed supply. The goods and services can be separated, and they are viewed as separate supplies. The tax rate applicable to the mixed supply will be the tax rate applicable to the goods and services supplied.

Classification of Works Contract under GST

The classification of works contract as goods or services under GST is a crucial aspect. The classification decides the taxability of the transaction. According to the GST Act, works contract is a supply of services. However, the transfer of property in goods involved in the execution of a works contract is deemed as a supply of goods. In other words, a works contract is a combination of a supply of services and a supply of goods.

The classification of works contract as goods or services depends on the nature of the contract. If the contract is predominantly for the supply of goods, then it will be classified as goods. If the contract is predominantly for the supply of services, then it will be classified as services. The classification will be based on the value of goods and services supplied.

Conclusion

The classification of works contract as goods or services under GST is a crucial aspect that decides the taxability of the transaction. The classification depends on the nature of the contract and the value of goods and services supplied. It is essential to correctly classify the works contract to avoid any tax-related issues. As a business owner, it is recommended to seek professional advice to understand the classification of works contract under GST.

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