GST on Labour Charges in India
Labour charges attract 18% GST in India under SAC 9985. Pure labour for building a single residential unit, and labour under government housing schemes, are exempt.
Working out the GST on labour charges
Labour charges are taxed at 18%, and the calculator below uses that rate. Pure labour for a single home and for government housing schemes is exempt, so check whether an exemption applies before you charge tax. Multiply the taxable value by 18 percent to get the GST, then add it to the base price for the total.
- For an intra-state sale, the 18% splits into 9% CGST and 9% SGST.
- For an inter-state sale, a single 18% IGST applies instead.
- The calculator on this page is pre-set to the 18% rate and handles both cases.
A worked example
Suppose a labour bill has a taxable value of ₹50,000 before tax. Applying 18% GST works out as follows.
Labour rates and the exemptions worth knowing
Most labour and manpower services sit at 18%, and the 56th Council removed the old 12% bracket for most of them in September 2025. But the exemptions under Notification 12/2017 are genuinely valuable and widely missed, particularly the one for building a single home.
| Service | SAC | GST rate |
|---|---|---|
| Manpower supply, contract staffing | 998513 | 18% |
| Security, housekeeping, drivers, clerical | 9985 | 18% |
| Works contract (labour plus materials) | 9954 | 18% |
| Pure labour: single residential unit | 9954 | Exempt |
| Pure labour: PMAY and govt housing schemes | 9954 | Exempt |
| Panchayat / Municipality functions (243G, 243W) | 9985 | Exempt |
The single-home exemption
If you hire a contractor for pure labour to build or renovate a single residential unit that is not part of a residential complex, that service is exempt under Notification 12/2017. The key word is pure: the contractor supplies only labour while you supply the materials. The moment the contractor also supplies cement, steel or tiles, it becomes a works contract and attracts 18% on the whole thing. This is the single most useful thing on this page for anyone building their own house, and it is why the labour-versus-materials split in your contract is worth getting right before work starts rather than after.
Pure labour contract or works contract
The distinction runs through everything here. A pure labour contract is labour only, with the recipient providing materials. A works contract under Section 2(119) of the CGST Act bundles labour and materials together, and is a composite supply taxed at 18% on the total. Two contractors doing identical physical work can therefore carry different tax depending purely on who bought the cement. Separating labour cost from material cost in your paperwork is not cosmetic, it decides the rate.
When you pay the tax instead of the contractor
If your labour contractor is not registered under GST, reverse charge applies: you as the registered recipient pay the 18% directly to the government rather than to the contractor. You self-invoice, and you can claim the same amount back as input tax credit where the labour feeds a taxable business supply. Small contractors are frequently unregistered, since the threshold for services is ₹20 lakh of aggregate turnover (₹10 lakh in special category states), so this comes up often on smaller jobs.
GST and TDS are separate, and TDS comes first
These get tangled constantly. TDS under Section 194C of the Income Tax Act is deducted by you from the contractor's payment. GST is an indirect tax charged on top. They are different taxes under different laws, and the sequencing matters: TDS is calculated on the GST-exclusive amount, provided the GST is shown separately on the invoice. So on ₹1,00,000 of labour, you deduct TDS on the ₹1,00,000 and handle the ₹18,000 of GST separately, rather than deducting TDS on ₹1,18,000.
The taxable value is more than the wage bill
The 18% applies to more than the bare wage bill. The taxable value includes the basic labour cost, any service or administrative charges the contractor adds, and contributions such as EPF and ESI borne on the contractor's behalf. Businesses can claim ITC on labour charges used for taxable activities, but note the familiar block: credit is not available where the labour goes into constructing immovable property for your own use.
Frequently asked questions
Labour charges attract 18% GST under SAC 9985, covering manpower supply, contract staffing, security, housekeeping and driver services. Works contracts combining labour and materials are also 18%.
Pure labour services for constructing a single residential unit that is not part of a residential complex are exempt under Notification 12/2017. The exemption applies only where the contractor supplies labour alone and you supply the materials.
A pure labour contract is labour only, with the recipient supplying materials. A works contract bundles labour and materials together and is taxed at 18% on the total. The distinction decides whether an exemption can apply.
You do, under reverse charge. As the registered recipient you pay the 18% directly to the government and can claim it back as input tax credit where the labour is used for taxable business supplies.
No. TDS under Section 194C is deducted on the GST-exclusive amount, provided the GST is shown separately on the invoice. On ₹1,00,000 of labour charges you deduct TDS on ₹1,00,000, not on the GST-inclusive ₹1,18,000.