HSN Code of Work Contract for GST

The abbreviation of HSN code is Harmonised System Nomenclature. This code is used to classified different kinds of material needed for the purpose of GST in India.

HSN Code has been discovered for the systematic classification of goods around all over the world. The HSN Code is generally a 6-digit code which categorises 5000+ goods which is accepted worldwide. The HSN Code was introduced by the World Customs Organisation (WCO) in the year 1988.

The most important aim of HSN Code is to categorised goods from all over the world in a methodical as well as rational manner. This facilitates international trade also.

Work contract is a contract that includes moving of property in goods and the carrying out of the following services like erection, installation or commissioning of plant, machinery, installation of electronic and electrical devices, plumbing, construction of new building or new residential complex etc. Basically, a work contact is a transfer of goods as well as mixture of service.

In December 2017, the Central government of India has announced a big relief to the work contractors by reducing the tax rate from 12% to 5% for the supply of work contracts which constitutes mainly of earth work. Moreover, the supply of work contract must mainly include earth work which is created more than 75% of the value of work contract.

As mentioned in Section 2 of the clause 119 of the CGST Act of 2017, Work Contract is defined as a contract for building, fabrication, completion, erection, installation, maintenance, renovation, repairing, commissioning or alteration of any immovable property etc. is involved in the implication of contract.

Uses of HSN Code under the work contract are the follows:

  1. HSN Code rely on the turnover of the dealer’s previous financial year. A yearly income of less than Rs. 1.5 crores of the dealers are not mandatory to use the code of HSN for invoices generating or return filing.
  2. A yearly income equalling of Rs 5 crores and more of the dealers should use a four-digit code of HSN for their invoices.
  3. A yearly income of between Rs. 1.5 crores and Rs. 5 crores of the dealers must use the right two-digit HSN code for their items for filing returns and invoicing is required.
  4. For export and import of materials the right usage of eight-digit HSN code is mandatory because the complain of GST invoices must be suitable with the international invoicing practices and standards.

The purpose of HSN Code in work contract under the GST in India is to make GST methodical as well as accepting it globally. The development of HSN Code will save time and make filing easier as returns of the GST are automated. A service provider or a dealer should acquire HSN Code of sales in his GSTR-1 if his income falls in above lists.

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