Labour Charges HSN Code (SAC) and GST Rate: Which Code to Use on Your Invoice

"Labour charges" is one of the most common lines on Indian invoices, and also one of the most confusing for GST. Contractors, fabricators, electricians, staffing agencies and job workers all bill for labour, but GST does not have one code called "labour charges". The right code depends on what kind of work the labour performs.

Pick the wrong one and you may apply the wrong rate, which creates a mismatch for your client's input tax credit and a possible demand notice for you. This guide maps common labour scenarios to the correct code and rate.

Quick answer: Labour charges are a service, so they use a SAC code (6 digits starting with 99), not an HSN code for goods. The most common codes are 9954 (construction labour and works contracts), 998519 (labour or manpower supply), 9988 (job work on someone else's goods) and 9987 (repair and maintenance labour). Most labour services attract 18% GST, with some job work at 5% and certain pure labour contracts for individual houses exempt.

HSN vs SAC: Why "Labour Charges HSN Code" Is Technically a SAC

People search for an "HSN code for labour charges" because accounting software and invoice templates often label the field "HSN/SAC". The distinction:

1. HSN (Harmonised System of Nomenclature) classifies goods.
2. SAC (Services Accounting Code) classifies services. All SAC codes begin with 99.

Labour is a service, so you will always use a SAC code. On the invoice, you can enter it in the same HSN/SAC column.

How many digits must you show?

Under CBIC Notification No. 78/2020-Central Tax:

1. Aggregate turnover up to ₹5 crore: 4 digits are mandatory on B2B invoices.
2. Turnover above ₹5 crore: 6 digits are mandatory on all invoices.

Showing the full 6-digit code is good practice either way, because it removes ambiguity.

SAC Code for Labour Charges: Scenario-Wise Table

The six-digit codes come from the GST SAC classification scheme. Before finalising your invoice master, cross-check the exact sub-code on the StartupFlora HSN Code Finder.

Labour Charges SAC Code 9954 (Construction)

Heading 9954 covers construction services, including labour-only contracts and composite works contracts where both labour and material are supplied.

1. General works contracts: 18% with input tax credit.
2. Government works contracts that are predominantly earthwork: moved from 12% to 18% with effect from 22 September 2025, along with sub-contracts for such work.
3. Pure labour contracts for a single residential unit (not part of a residential complex), or for beneficiary-led house construction under PMAY / Housing for All: exempt under Notification No. 12/2017-Central Tax (Rate).

A "pure labour" contract means the contractor supplies only labour. If the contractor also supplies cement, steel or tiles, it becomes a works contract and the exemption does not apply.

Example: Ramesh, a mason in Nagpur, agrees to build an individual house for a family and charges only for his team's labour, while the family buys all material. His charges are exempt. If the same family were buying a flat in a society, or if Ramesh supplied the bricks, the work would be taxable.

Labour Charges SAC Code 998519 (Manpower Supply)

When an agency supplies workers who work under the client's supervision, the service falls under 9985 (support services), specifically 998519, other employment and labour supply services.

1. GST rate: 18%
2. The GST is charged on the full invoice value, including the wages and statutory contributions (PF, ESI) reimbursed by the client, not only on the agency's margin.

That last point catches many small staffing firms off guard. If you bill ₹5,00,000 in wages plus a ₹40,000 service fee, GST applies on ₹5,40,000, not ₹40,000.

GST on Job Work Labour (SAC 9988)

Job work means processing goods that belong to someone else. Common examples include stitching fabric supplied by a garment brand, polishing diamonds, or machining castings supplied by an auto-component maker.

Job work rates were revised during the GST 2.0 rationalisation. Confirm the current rate for your specific product line against the latest CBIC rate notification before invoicing.

Is GST Applicable on Labour Charges?

GST is applicable on labour charges when the supplier is registered or required to be registered. You are required to register once your aggregate turnover crosses ₹20 lakh for services (₹10 lakh in special category states).

GST is not charged when:

1. An individual contractor's turnover is below the registration threshold and they are not voluntarily registered.
2. The service is specifically exempt, such as pure labour for a single residential unit.
3. An employee is paid salary by an employer. Wages under an employment contract are outside GST.

See our guide on the GST registration threshold for goods and services.

RCM on Labour Charges

There is no general reverse charge on labour or manpower supply. The supplier charges GST in the normal way.

Two related reverse charge entries to know:

1. Security services supplied by a person other than a body corporate to a registered person: GST is paid by the recipient under reverse charge, with some exceptions.
2. Purchases from unregistered suppliers by builders, where they fall short of the prescribed registered procurement in real estate projects.

Ordinary labour charges paid to an unregistered contractor do not attract RCM for most businesses.

Common Mistakes on Labour Invoices

Using a goods HSN code. Some businesses pick the HSN code of the product being worked on (for example, steel structures under Chapter 73) instead of the service code. Labour must use a SAC.

Charging GST only on margin for manpower supply. As explained above, the taxable value includes wages.

Splitting a works contract into "material" and "labour" to apply lower rates. A composite works contract involving immovable property is treated as a single supply of service under 9954.

Claiming the pure labour exemption for apartment work. The exemption applies only to a single residential unit not part of a complex, or to PMAY beneficiary-led construction.

Practical Examples

Fabrication workshop in Faridabad: Fabricates steel frames from steel supplied by a client. This is job work under 9988, charged at 18%, as engineering job work is not in a concessional category.

Electrical contractor in Bengaluru: Rewires a café, supplying cables and switches. This is a works contract under 9954 (995461) at 18%.

Housekeeping agency in Noida: Supplies 20 cleaning staff to a corporate office. 998519 at 18% on the full invoice value. (Cleaning services by a contractor managing the work itself may instead fall under 998533.)

Frequently Asked Questions

1. What is the HSN code for labour charges? Labour charges use a SAC code, not an HSN code. The most common are 9954 for construction labour, 998519 for labour supply, 9988 for job work and 9987 for repair labour.

2. What is the GST rate on labour charges? Most labour services attract 18% GST. Certain job work (textiles, leather, book printing) is at 5%, and pure labour contracts for a single residential unit or PMAY house are exempt.

3. Is SAC 998519 correct for manpower supply? Yes. 998519 covers other employment and labour supply services. Temporary staffing has a separate code, 998514.

4. Is GST charged on labour charges paid to an unregistered contractor? The unregistered contractor cannot charge GST, and there is no general reverse charge on labour services, so usually no GST is payable.

5. Is GST applicable on the wages component of a manpower invoice? Yes. GST applies to the full consideration, including wages and statutory contributions billed by the agency.

6. Which SAC code applies to installation labour? Installation of machinery and equipment falls under heading 9987. Electrical and plumbing installation in buildings falls under 9954.

7. How many digits of SAC must I show on an invoice? Four digits if your aggregate turnover is up to ₹5 crore (for B2B invoices), and six digits if it exceeds ₹5 crore.