Impact of Goods and Services Tax on Job Work

Goods and Services Tax (GST) was implemented in India on 1st July 2017, and since then it has been a topic of discussion for business owners, accountants and finance professionals. One of the important aspects of GST is its impact on job work, which is a common practice in many industries. In this article, we will discuss the impact of GST on job work and the GST rates applicable on job work.

What is job work?

Job work is a process where a business sends its raw materials or semi-finished goods to another business, which does the processing or manufacturing work on behalf of the first business. The business that outsources the work is called the principal and the business that does the work is called the job worker. The job worker returns the finished goods or semi-finished goods to the principal, who then sells them to customers.

Impact of GST on job work

The introduction of GST has impacted job work in many ways. Prior to GST, job work was covered under the Central Excise Act, 1944 and the Service Tax Rules, 1994. Under the Central Excise Act, job work was subject to excise duty, while under the Service Tax Rules, job work was subject to service tax. GST has now replaced both these taxes, and job work is now subject to GST.

Under GST, job work is considered as a supply of goods or services and is liable to tax according to the rates prescribed in the GST law. The GST law has prescribed different rates for job work depending on the nature of the work and the goods on which the work is done. The GST rates applicable on job work are as follows:

For job work on textiles and textile products, the GST rate is 5%.
For job work on diamonds, precious stones and jewellery, the GST rate is 1.5%.
For job work on all other goods, the GST rate is 18%.

It is important to note that the principal is also liable to pay GST on the value of goods sent for job work. The GST paid by the principal can be claimed as input tax credit (ITC) by the job worker, which can be used to offset the GST liability on the finished goods or services.

Impact of GST on small businesses and job workers

The impact of GST on small businesses and job workers has been a topic of discussion since its implementation. One of the major challenges for small businesses and job workers is compliance with the GST law. The GST law has many provisions and compliance requirements, which can be difficult for small businesses and job workers to understand and comply with. This has resulted in an increase in compliance costs for small businesses and job workers.

Another challenge for small businesses and job workers is the requirement to register under GST. The GST law requires all businesses with an annual turnover of Rs. 20 lakhs or more to register under GST. This requirement applies to job workers as well. Many small job workers may not have an annual turnover of Rs. 20 lakhs and may not be able to register under GST, which can limit their business opportunities.

Conclusion

In conclusion, the impact of GST on job work has been significant since its implementation. Job work is now subject to GST, and the GST rates applicable on job work vary depending on the nature of the work and the goods on which the work is done. Small businesses and job workers may face challenges in complying with the GST law and registering under GST, which can increase their compliance costs and limit their business opportunities.