Some of the most common GST questions are not about registration at all. They are about specific charges on an invoice: labour, freight, transport, catering and service charges. The rates differ, several run on reverse charge, and applying the wrong one creates problems at reconciliation. Here is how each works.
GST on labour charges
Labour supplied as a service is generally taxable at 18%. The important distinction is between a pure labour contract, where only manpower is supplied, and a works contract, where labour and materials are supplied together.
- Pure labour contracts for construction, erection or installation of a single residential unit, and certain government housing schemes, are exempt.
- Works contracts combining goods and services are treated as a composite supply of services and taxed accordingly.
- Manpower supply agencies supplying workers charge 18% on the full amount billed, including wages recovered.
A frequent error is charging GST only on the agency commission rather than the full invoice value. For manpower supply, the taxable value is normally the gross amount charged, not just the margin.
GST on freight and goods transport
Freight charged by a Goods Transport Agency has its own regime. A GTA can operate under either of two options:
| Option | Rate | Input tax credit |
|---|---|---|
| Reverse charge, tax paid by recipient | 5% | Not available to the GTA |
| Forward charge, tax paid by the GTA | 5% | Not available to the GTA |
| Forward charge, tax paid by the GTA | 18% | Available to the GTA |
The forward-charge option with input tax credit moved from 12% to 18% under the GST rate changes effective 22 September 2025. A GTA opting for forward charge does so at the start of the financial year.
Under reverse charge, specified recipients such as registered companies, partnerships and factories pay the GST directly rather than the transporter. Transport of goods by road by anyone other than a GTA or courier agency is generally exempt, as is transport of certain goods such as agricultural produce and milk.
GST on freight added to a sales invoice
Where you sell goods and charge freight on the same invoice, the freight normally forms part of a composite supply. It takes the same GST rate as the goods themselves, not a separate transport rate. This is one of the most commonly misapplied rules on outward invoices.
GST on passenger transport
- Non-air-conditioned stage carriage and metered auto, taxi and e-rickshaw rides are generally exempt.
- Air-conditioned contract carriage and radio taxi services are taxable, commonly at 5% without input tax credit.
- Air travel is taxed at 5% for economy class and a higher rate for other classes.
- Ride-hailing platforms collect and pay GST as e-commerce operators on specified services.
GST on catering and food services
- Restaurant service other than in specified premises is generally 5% without input tax credit.
- Restaurants in specified hotel premises above the prescribed room tariff attract 18% with input tax credit.
- Outdoor catering follows the same distinction, at 5% without credit or 18% with credit depending on the premises.
- Canteen services provided to an employer for staff are taxable, subject to conditions.
GST on service charge collected by restaurants
A service charge added by a restaurant is not a government levy and is not GST. It is part of the consideration for the supply, so GST applies to the total including that service charge. Consumer protection guidance treats service charge as voluntary, and it must not be presented as a compulsory government tax.
Why this matters at reconciliation
Wrong rates on these charges surface later as mismatches between GSTR-1, GSTR-3B and GSTR-2B, blocked input tax credit for your customers, and notices. Reverse charge items are the most frequently missed, because no tax appears on the supplier invoice and the liability sits quietly with the recipient.
Frequently asked questions
Where the supply is from a Goods Transport Agency and reverse charge applies, the specified recipient pays the GST regardless of the transporter's registration status.
Tax paid under reverse charge is generally available as input tax credit, provided the underlying supply is used for business and is not otherwise blocked.
Wages paid under an employer-employee relationship are outside GST. GST applies where manpower is supplied as a service by a contractor or agency.
GST rates and conditions stated here are general information as of August 2026 and can change through GST Council notifications. Confirm the position for your specific transactions before invoicing, or speak to a qualified professional.
Not sure which rate applies to your invoices?
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