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For an Indian contract under the pre-GST service-tax regime, check the tax period, whether the work met the statutory definition of a works contract, who was liable for the tax, whether composition was elected before tax was paid, and whether the required input-credit restriction was followed. A residential project label by itself does not establish eligibility. The scheme is historical: GST began on 1 July 2017, so supplies from that date need to be assessed under GST instead.
Start with the tax period: service tax or GST?
The Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 were an Indian service-tax regime. GST began on 1 July 2017 and subsumed service tax. If the supply in question falls on or after that date, do not use the old composition rules to decide its treatment; assess it under the applicable GST law and notifications. The CBIC construction-services rate material is a starting point for GST categories, but the applicable rate depends on the supply and relevant rules.
For an older contract, identify the service period and when tax became payable, rather than relying only on the agreement’s signing date. Match those dates to the version of the rules and amendments then in force. The original rules took effect on 1 June 2007; later amendments changed the composition percentage.
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Read the executed agreement, its scope of work, and related invoices. The scheme applied to a works-contract service within the definition in the Finance Act, 1994 that the rules incorporated. Do not infer that a contract qualifies simply because it is called a construction contract or involves a residence. The 2007 rules and their context are reproduced at TaxGuru’s text of the Works Contract Composition Rules.
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Identify the person liable for service tax
Establish who supplied the work and who was legally liable to pay service tax for that particular supply. The composition option was available to the person liable for the tax, so a builder, contractor, developer, or homeowner should not assume the answer from the job title alone. Check the contract, invoices, tax returns, and payment records together.
Find proof of a timely composition election
Locate the election or option record and compare its date with the first service-tax payment for that works contract. The option had to be exercised before tax was paid. The rule applied the option to the entire works contract and barred withdrawal until completion; it was not a choice to switch methods invoice by invoice. The reproduced rule states that the option applied to the entire contract and could not be withdrawn until completion.
- Look for a dated written election or other contemporaneous tax record.
- Match the election to the contract and the applicable tax payments.
- Check that the same contract was treated consistently through completion.
Review input-credit records
While using composition, the provider could not take CENVAT credit of duties or cess paid on inputs used in or in relation to that works contract. Review CENVAT ledgers, input invoices, and returns for relevant credits. A credit claim may indicate that the composition conditions were not followed, but its legal effect depends on the specific facts and records.
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Use the correct rate and tax base for the period
The percentage changed over time, so there is no single composition rate for every service-tax-era contract. These are historical rates under the relevant central rules, not current GST rates:
| Period or change | Composition amount | Authority |
|---|---|---|
| Original rule, effective 1 June 2007 | 2% of the gross amount charged | Government of India, Notification 32/2007-Service Tax |
| After the 2008 amendment | 4% of the gross amount charged | Government of India, Notification 7/2008-Service Tax |
| From 1 April 2012 | 4.8% of the gross amount charged | Government of India, Notification 10/2012-Service Tax |
Check the amendment that applied to the relevant tax period rather than applying 4.8% to earlier years. The 2009 amendment added detail to how gross amount was calculated and disallowed the option where the declared value was below the gross amount charged. See the government amendment material in the India Budget archive for Notification 10/2012-Service Tax and the India Budget archive for Notification 23/2009-Service Tax. Reconstruct the base from the records and the rule version; do not assume the contract’s stated price alone answers the valuation question.
Keep residential valuation rules separate from composition eligibility
Some service-tax valuation provisions treated residential works contracts differently according to specified unit-area or charge thresholds where the contract value included goods and land or an undivided share of land. Those were valuation rules, not proof that a composition election was valid. The 2017 Gazette amendment is available at Gazette of India, Notification 8/2017-Service Tax. Apply such provisions only after establishing the relevant transaction, dates, and valuation facts.
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Assemble the records before reaching a conclusion
A reliable eligibility check depends on matching documents across the contract and tax period. Gather:
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- The signed contract, scope of work, and amendments.
- Work, invoice, and service-tax payment dates.
- Records identifying the provider and the person liable for tax.
- The composition election and service-tax returns or payment records.
- Gross-amount calculations and related invoices.
- CENVAT ledgers and input-duty or cess documentation.
- For residential valuation questions, project and unit details relevant to the applicable rule.
Use those materials to test each legal condition against the amendment effective for the period. The records may establish what was reported and paid, but a definitive view on a disputed contract can require review of the full assessment file and applicable historic rule text.
When a contract-specific review is needed
Seek qualified Indian tax advice if the election date is unclear, the liable taxpayer is disputed, declared value differs from gross amount charged, input credit was taken, or the records span a transition to GST. For a current GST supply, check the current CBIC notifications as well as the contract’s classification and project facts; a historical service-tax rate cannot resolve that question.
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