Rate of tax on Painting contract

[Bharat Cholleti]

Dear sir,

Rate of tax on painting contracts to apartments and buildings, is he eligible for ITC. As painting contracts involves labour. Section 8 of CGST Act says rate of tax should be applicable on principal supply. pl advise.

[Rajagopalan Ranganathan]

Sir,

If the contract is for supply of paints and labour, then it will be treated as works contract. According to Section 17 (5) (c) ofCGST Act, 2017 input tax credit shall not be available in respect of works contract services when supplied for construction of an immovable property (other than plant and machinery).

According to Explanation under Section 17 (5) (d) "for the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property".

[Rachit Agarwal]

Painting of Apartment being newly constructed would not be eligible for ITC as the same takes the colours of construction of Immovable Property

Painting of Old Apartment would be in nature of Repairs and Maintenance and would be eligible for claim of credit of ITC and restriction would not apply.

Rate of Tax shall be as that of Works Contract Services.

[Ethirajan Parthasarathy]

I am under the impression that restriction under section 17(5) applies to receiver of service.Pls see answers to issue 116150

The query here is from the angle of painting contractor who has nothing to do about capitalisation in the books of contractee.Hence I am of the opinion he is entitled to take input credit irrespective whether the building is new or old

[Ganeshan Kalyani]

The input tax credit would be available to the recipient of service if he accounts it as a revenue expenses.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

The querist is asking whether ITC is available to the supplier of service (Painting Contractor).

[Ganeshan Kalyani]

The supplier of service is eligible yo take credit on the inputs like paint purchase (if it is in his scope) , labour charges paid by him to manpower supplier. Since the said expenses is an input service for the purpose of providing output service the credit on inputs would be elogible.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

I concur with your views.

AI Summary

Input tax credit restriction on works contract: recipient's ITC depends on capitalization; supplier may claim input credits. Painting contracts supplying paints and labour are treated as works contract services and taxed accordingly. Recipient ITC is disallowed under Section 17(5)(c) for works contracts related to construction of immovable property to the extent of capitalization, so painting of newly constructed apartments is excluded while non-capitalized repairs are eligible; the restriction applies to the recipient, whereas the painting contractor (supplier) may claim ITC on inputs and input services used to provide the service.