With GST Coming in - How will Job Work be affected?

According to GST, job work is any process or treatment undertaken by an individual on goods that belong to another registered individual. The person who carry outs the said job is known as a job worker. It’s not that the job worker gets the ownership of goods, but it remains with the principal owner. The job worker’s duty is only to execute the process specified by the principal owner on the goods. There are special provisions under the GST Act as far as the removal of goods for job work and receiving goods back after meting out from the job worker without the GST payment are concerned. Both the job worker as well as the principal owner stands to get benefits of these provisions.

Concept of Job Work

Job work industry constitutes a key sector in Indian economy. Many view it as an essential arm of the industrial sector. ‘Job Work’ typically includes outsourced activities that could or could not result into manufacture. The individual who undertakes the job is known as job worker. The task of the job worker is always to work under the commands of the principal manufacturer and executes his task over the inputs belonging to his principal. Where executing the work results in the manufacture of goods, excise duty gets applicable and in other cases, service tax comes into picture.

The impact of GST on the transactions of Job work can be better understood, only if the prevailing taxation aspects are first noted. Let’s gets a brief understanding of how job work is treated under the current tax regime and how it will be different in the GST regime.

Current Tax Regime: Job worker charging processing charges – In this scenario service tax is not pertinent on the processing charges charged by a job worker.

Jigs, fixture, tools, moulds and dies sent to a job worker – Here no tax is applicable on jigs and fixtures, moulds and dies or tools sent to a job worker.

Scrap or waste generated during job work – The Job worker can supply any scrap or waste generated during job work directly from his place of business if at all he is registered or by the principal in case the job worker is not registered.

GST Regime: When inputs or capital goods are sent for job work, no tax is pertinent. When the goods are to be removed for job work, the principal can issue a delivery challan

When capital goods or inputs sent for job work are brought back to the principal’s business place within 1 or 3 years respectively, then no tax is pertinent.When capital goods or inputs sent for job work are supplied from the job work’s place of business within 1 year or 3 years respectively, tax is pertinent if the supply is within India. Tax is not applicable if the supply is for export.

Similar to the current regime will be the tax treatment for job work under GST. Small and medium sized businesses using Tally ERP 9 for their functioning will find easier to adopt to the new system. With Tally GST the new way to go forward, businesses sooner or later will adopt to this changing dynamics.

Riyaz Tamboli is a Director at Antraweb Technologies Pvt. Ltd., a leading provider of Tally ERP solutions built on the Tally platform.