GST on Job Work: Rates, Input Tax Credit and the One-Year Rule
A practical guide to GST on job work — what counts as job work, the GST rates that apply, how input tax credit flows, and the time limit for returning goods.
Job work is everywhere in Indian manufacturing — a textile unit sends fabric out for dyeing, an engineering firm sends castings out for machining. GST treats job work with its own set of rules, and getting them right protects both your cash flow and your input tax credit. Here is a practical overview.
What is job work under GST?
Job work means processing or treatment carried out on goods that belong to another registered person — the "principal". The principal sends raw materials or semi-finished goods; the job worker performs the work — cutting, welding, polishing, stitching, assembly — and sends them back.
The legal definition sits in Section 2(68) of the CGST Act. The important word is belonging to another registered person: the goods never stop being the principal's property. The job worker only supplies a service.
GST rates on job work
Job work services fall under SAC 9988 — manufacturing services on physical inputs owned by others. The rate depends on what is being worked on:
- 1.5% — notified items such as cut and polished diamonds.
- 5% — notified sectors including textiles, leather and certain food items.
- 12% — general job work where the principal is GST-registered.
- 18% — job work where the principal is not registered, plus works such as bus-body building.
Because these rates are set by notification and are revised from time to time, always confirm the rate for your specific goods against the latest CBIC rate notification — or check with your accountant. The list above is a general guide, not a substitute for the current notification.
Input tax credit on job work
This is where job work works in your favour. Input tax credit (ITC) flows smoothly when the rules are followed:
- The principal can claim ITC on inputs and capital goods sent for job work — even if they are sent directly to the job worker's premises without first coming to the principal. This is allowed under Sections 19 and 143 of the CGST Act, read with Rule 45.
- The job worker, if registered, can claim ITC on their own inputs and input services used to perform the work.
So when a textile company sends fabric to a registered job worker who charges 5% GST on the job work, the textile company can claim that 5% as ITC.
The one-year and three-year rule
There is a clock running. Goods sent for job work must come back — or be supplied onward from the job worker's premises — within a time limit:
- Inputs — within 1 year.
- Capital goods — within 3 years.
Miss the deadline and the goods are treated as a deemed supply by the principal on the day they were originally sent out — which means tax becomes payable, with interest. Moulds, dies, jigs and fixtures are excluded from this time limit.
Documentation: the delivery challan
Goods do not move to a job worker on a tax invoice — they move on a delivery challan, because there is no sale. The challan should carry the description and quantity of goods, the parties' details and GSTINs, and the date.
Job work movements are also reported in Form ITC-04, which reconciles what was sent out against what came back.
Keep the clock visible
The hardest part of job work is not the tax rate — it is tracking. Which challan is still open? What is overdue? What has come back partly?
Booksmor's production module is built for exactly this: it tracks every job work order — material sent out, material received back, the challan, and the cost — flowing straight into your accounts. You always know what is outstanding before the one-year clock runs out. Start a 30-day free trial and see it in action.
This article is general guidance. GST rates and rules change — confirm the position for your specific goods and circumstances before relying on it.