GST on government works contracts
How GST applies to a works contract for a Karnataka government department: the 18% rate since July 2022, whether your quoted rate includes GST, how the department pays it, input tax credit on materials and machinery, invoicing each RA bill, and the returns a contractor files.
In this module
A works contract is a supply of service under GST, and a government department is a customer like any other: it pays you the tax and you pay it to the government. Three questions decide how much this matters to your price: the rate, whether your quote includes it, and how much credit you can claim.
The rate: 18%
Works contract services supplied to government departments and local authorities were taxed at 12% until 18 July 2022, when Notification 03/2022-Central Tax (Rate) raised them to 18%, the rate applying to works contracts generally. Every Karnataka works tender since then is at 18%. Contracts signed before the change had a messy transition; anything you bid now is 18% throughout.
Inclusive or exclusive?
The tender document says. Karnataka PWD and most departments now build the estimate excluding GST and pay GST on top of the bill at the applicable rate; your percentage quote is on the ex-GST estimate and the department adds 18% to each RA bill. Some older documents, and some ULBs, state that rates are inclusive of all taxes, in which case 18% of your bill is tax that leaves you. Read the clause before you price; the difference is a sixth of the money.
Input tax credit
The GST you pay on cement, steel, bitumen, aggregates, pipes, machinery hire and engineering services is creditable against the GST you charge, provided the supplier's invoice carries your GSTIN and the supplier has filed. (Diesel is outside GST, so there is no credit on fuel.) Buy from registered dealers, insist on a tax invoice in the business's name, and reconcile your purchase register with GSTR-2B every month. A contractor who buys from unregistered suppliers is paying 18% out and claiming nothing back.
Invoicing the department
Each RA bill is a tax invoice: your GSTIN, the department's GSTIN (departments have them, for TDS), the description of works contract service, the taxable value, CGST 9% and SGST 9% (both within Karnataka), the total. The department deducts 2% {{gst-tds|GST TDS}} from the taxable value (1% CGST + 1% SGST) and deposits it against your GSTIN; you see it in your cash ledger after the department files GSTR-7 and you accept it. It is a credit against your liability, not a cost.
Returns
GSTR-1 (outward supplies) and GSTR-3B (summary and payment), monthly or quarterly under the QRMP scheme if your turnover allows, plus the annual GSTR-9. The invoice date, not the payment date, decides which month a bill belongs to; a large RA bill invoiced in March is tax due in April whether or not the treasury has paid you. Time your invoices with the bill's passing, not with measurement.
Sub-contractors
Work you sub-let to a registered sub-contractor is a supply to you at 18%, and the credit is real. Keep sub-contracts in writing with GST invoices and payments by bank; it is also what the KPWD Code wants for sub-contract work to count toward registration, and it is what your sub-contractor needs for their own Class IV certificate.
Key takeaways
- Government works contracts carry 18% GST since 18 July 2022.
- Check whether the tender's rates exclude GST (usual now) or include it; the difference is a sixth of your money.
- Buy from registered suppliers with your GSTIN on the invoice and claim input credit; reconcile with GSTR-2B.
- Each RA bill is a tax invoice; the department deducts 2% GST TDS as a credit to your account, not a cost.
Check yourself
0 / 3- 1.What is the GST rate on works contract services to a Karnataka government department?
- 2.A tender says rates are inclusive of all taxes. You quote ₹50 lakh. How much is GST inside it, roughly?
- 3.What is GST TDS?
Frequently asked
Is GST included in the PWD estimate in Karnataka?
Can a works contractor claim input tax credit on cement and steel?
When did GST on government works go from 12% to 18%?
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Written from the KTPP Act and Rules, the Karnataka Public Works Departmental Code 2014, KPWD bidding documents and office checklists, and checked against awarded tenders on this site. Figures change; the tender document and the registering office are the final word. Spotted an error? Tell us.