Is Works Contract a Composite Supply

When it comes to the Goods and Services Tax (GST) system in India, understanding the concept of composite supply is crucial for businesses. One of the important questions that businesses often ask is whether works contract is a composite supply under GST. In this article, we will explore this question in detail.

Firstly, let us understand what is meant by a composite supply. In GST, a composite supply is a supply consisting of two or more goods or services that are naturally bundled and supplied in conjunction with each other in the ordinary course of business. In other words, it is a package deal where the components are not available separately.

Now, coming to the question of whether works contract is a composite supply, the answer is yes. As per the GST Act, works contract is considered a composite supply as it involves the supply of both goods and services. Generally, works contract involves the transfer of property in goods (such as construction materials) as well as the provision of services (such as labour and supervision) for the execution of a work.

The GST Act defines works contract as a contract for building, construction, fabrication, completion, erection, installation, fitting-out, improvement, modification, repair, renovation, alteration or commissioning of any immovable property. This includes any related transfer of property in goods and services.

However, there is an exception to this rule. If the value of goods supplied as part of a works contract is less than 25% of the total value of the contract, then it will not be considered a composite supply. In such a case, only the service portion of the contract will be subject to GST.

It is important for businesses to understand the concept of composite supply as it affects the GST treatment of their transactions. In the case of a composite supply, GST is levied on the entire package at the rate applicable to the principal supply. The principal supply is the main component of the package that gives it its essential character.

In conclusion, works contract is considered a composite supply under GST as it involves the provision of both goods and services. However, if the value of goods supplied is less than 25% of the total value of the contract, then it will not be considered a composite supply. Businesses should keep this in mind while dealing with works contracts to ensure compliance with GST regulations.