Job work under GST means any treatment or process done by a person (job worker) on goods owned by another registered person, called the principal. The ownership of goods stays with the principal, while the job worker simply performs processing steps like assembly, painting, or packing. Most MSMEs and manufacturers use job work to outsource parts of production and save on costs.
GST Rates for Job Work
The GST rate for job work varies by industry and the type of processing:
- General job work attracts an 18% GST rate unless notified otherwise.
- Textile processing, printing, leather, umbrellas, and a few other industries often have a reduced rate (5% - 12%) - especially since September 2025, where many rates dropped from 12% to 5%.
- Job work for diamond supplies is charged at 1.5% GST.
Always check the latest notifications as rates can change for specific sectors.
Key Compliance Requirements
GST compliance for job work involves documentation, registration, and tracking:
- The principal must issue a delivery challan when sending goods to the job worker, including details like description, quantity, value, and GSTINs.
- Both parties must maintain records of goods sent for job work and received after processing. GST law requires recordkeeping for at least 6 years.
- The principal must file returns such as ITC-04, providing detailed movement and return information for goods under job work.
- If goods are not returned within a set time (typically 1 year for inputs, 3 years for capital goods), GST is charged as if the principal supplied the goods to the job worker.
- Job workers must register under GST if their annual aggregate turnover exceeds Rs. 20 lakhs (Rs. 10 lakhs in special category states).
Invoicing and Tax Credits
- Sending goods for job work isn’t considered a "supply," so no GST is charged at dispatch.
- The job worker sends back a delivery challan after processing. For service charges, the job worker issues a tax invoice, including supplier and recipient details, GST rate, and HSN code.
- The principal pays GST on the value of job work services.
- Input tax credit (ITC) is available to the principal for GST paid on inputs and capital goods sent for job work. However, job workers can't claim ITC for materials provided by the principal.
Practical Tips for Small Businesses
- Always use correct documentation: delivery challan for goods transit and GST invoice for service charges.
- Track the deadline for return of goods from job work or risk additional GST liability.
- Keep detailed records for audits and compliance for six years.
- Confirm the GST registration status of every job worker you deal with and update contracts before major regulatory changes.
Common Penalties for Non-Compliance:
Non-compliance in job work under GST can lead to multiple penalties and even prosecution. The penalties depend on the type of violation but can be severe for both principals and job workers.
- Failure to maintain proper documentation, such as incomplete or missing challans when sending goods for job work, can lead to detention of goods and a penalty of 200% of the tax payable if not resolved quickly.
- Not filing required returns (like ITC-04) or furnishing incorrect information can attract penalties up to ₹10,000 or the amount of tax evaded, whichever is higher, plus a late fee of ₹100 per day under CGST and ₹100 per day under SGST, capped at ₹5,000 for regular returns.
- Wilful fraudulent activities, like improper claiming of input tax credit or hiding taxable transactions, may result in a penalty equal to 100% of the tax due or ₹10,000 whichever is higher plus prosecution and imprisonment for up to five years in extreme cases.
- Failure to register for GST (when required) or not providing invoices can also result in penalties of ₹10,000 or the tax due, whichever is higher.
Specific Penalties for Job Work Violations
- Goods sent for job work without proper documentation may get seized, leading to blocked working capital and interest liability.
- If goods sent for job work are not returned within the prescribed time (typically 1 year for inputs or 3 years for capital goods), GST is applicable as if the principal had supplied the goods to the job worker, and penalties apply.
Impact and Risks
- Penalties often compound with interest, usually at 18% per annum on unpaid GST dues.
- Repeated or major offenses can result in prosecution, fines, and imprisonment as per the severity of the violation.
In summation, job work under GST helps small manufacturers and MSMEs stay compliant and avoid costly mistakes as rates and rules evolve. Stay alert to GST council updates, and always double-check industry-specific rules before outsourcing production. Businesses must follow GST compliance for job work strictly to avoid harsh legal and financial consequences. Penalties are significant, and authorities actively monitor for violations.
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