GST Bills Reporting for Works Contractors: Understanding RA Bills

Introduction

The implementation of the Goods and Services Tax (GST) in India has significantly transformed the taxation landscape for various sectors, including the construction industry. One of the critical components in this sector is the management and reporting of Running Account (RA) Bills by works contractors. RA Bills are interim payment requests submitted by contractors based on the progress of work, ensuring continuous cash flow and project momentum. Proper GST compliance in the issuance and reporting of these bills is paramount to avoid legal complications and ensure smooth financial operations.​

Definition and Scope of Works Contract under GST

Under GST, a ‘works contract’ is defined as a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration, or commissioning of any immovable property wherein the transfer of property in goods is involved in the execution of such contract. This definition is confined to contracts related to immovable properties, distinguishing it from the broader interpretation under previous tax regimes.

Nature and Purpose of RA Bills

RA Bills serve as periodic statements submitted by contractors to claim payments for the portion of work completed during a specific period. These bills facilitate regular cash flow, enabling contractors to manage expenses and resources effectively throughout the project lifecycle. Each RA Bill typically includes details of the work executed, materials used, measurements, and the corresponding amount due.

GST Implications on RA Bills

1. Taxable Event and Time of Supply Under GST, the issuance of an invoice is a taxable event. For works contracts, GST becomes payable at the time of issuance of the invoice or receipt of payment, whichever is earlier. Therefore, each RA Bill, being an invoice for the work completed during a period, attracts GST at the applicable rate.
2. GST Rates Applicable The standard GST rate for works contracts is 18%. However, certain contracts provided to the government, local authorities, or governmental entities may attract concessional rates, subject to specific conditions. It’s crucial to refer to the latest notifications to determine the applicable rate for a particular contract.
3. Input Tax Credit (ITC) Eligibility Contractors can avail Input Tax Credit on goods and services used in the execution of works contracts, provided they are not used for the construction of immovable property on their own account. This ensures that the tax burden is minimized, and cascading of taxes is avoided.

Preparation and Submission of RA Bills

1. Contents of RA Bills An RA Bill should be GST-compliant and include:
   • Details of the contractor and recipient (name, address, GSTIN).​Unique invoice number and date.​Description of work completed with measurements.​Value of work executed.​
   • Applicable GST rate and amount.​
2. • Total amount payable.​
   Ensuring accuracy in these details is vital for compliance and to facilitate seamless ITC claims by the recipient.
3. Submission Process RA Bills are typically submitted periodically (e.g., monthly) to the client or project owner. Upon verification and approval, payments are released as per the agreed terms. It’s essential to maintain proper records of all RA Bills and corresponding payments for GST reporting and audit purposes.

GST Reporting Requirements

1. GSTR-1 Filing Details of all outward supplies, including works contract services billed through RA Bills, must be reported in Form GSTR-1 for the respective tax period. This includes:
   • Invoice-wise details of taxable outward supplies.​
   • Debit and credit notes, if any.​
   Timely and accurate filing of GSTR-1 ensures that the recipient can claim ITC without issues.
2. GSTR-3B Filing In Form GSTR-3B, contractors must declare the total taxable value, tax liability, and ITC claimed for the period. The GST payable on RA Bills issued during the month should be included in this return, and the corresponding tax should be paid accordingly.

Challenges and Considerations

1. Valuation of Supply Determining the correct taxable value is crucial. It should include all costs incurred in relation to the supply, such as materials provided by the recipient on a cost-recovery basis. As per Section 15(2)(b) of the CGST Act, any amount that the supplier is liable to pay but is incurred by the recipient and not included in the price is to be added to the value of supply.
2. Advances and Retention Money Advances received are subject to GST at the time of receipt. Retention money, withheld as a performance guarantee, poses challenges regarding the time of supply and GST payment. Contractors should carefully assess the terms of the contract to determine GST liability on such amounts.
3. Sub-Contracting In cases where a main contractor engages sub-contractors, each party is independently responsible for their GST compliance. The sub-contractor must charge GST on the services provided to the main contractor, who can claim ITC subject to eligibility.

Recent Updates and Amendments

The GST Council periodically reviews and updates the GST rates and provisions applicable to works contracts. For instance, with effect from January 1, 2022, the concessional GST rate of 12% for works contracts provided to Governmental Authorities and Government Entities