As per Section 3(1) of the Act, labour cess is levied at 1% of the “cost of construction.”

Cost of Construction Includes (Rule 3 of the Cess Rules, 1998)

✅ Material Cost – Cost of raw materials used in construction
✅ Labour Cost – Wages and salaries paid to workers
✅ Hire Charges – Rent for machinery and equipment
✅ Architectural & Design Fees – Payments to consultants, engineers, and designers
✅ Contractor’s Bills – Total contract value for civil work

Cost of Construction Excludes

❌ Land Cost – Purchase price or lease rent of land
❌ Compensation to Workers – Paid under the Workmen’s Compensation Act
❌ GST Component – Indirect taxes levied under GST

Labour Cess on Supply and Service Cost with GST

• Labour Cess is not levied on GST; it is calculated on the pre-tax cost of construction.
• If a construction contract includes both supply and services, the cess is applied to the total contract value before adding GST.
• Example Calculation:
  • Supply Cost (Materials): ₹50,00,000
  • Service Cost (Labour, Machinery, etc.): ₹30,00,000
  • Total Cost (before GST): ₹80,00,000
  • GST @ 18% (if applicable): ₹14,40,000
  • Labour Cess @ 1% on ₹80,00,000 = ₹80,000

What is a Subsidiary?

A subsidiary company is defined under Section 2(87) of the Companies Act, 2013 as a company where another company (holding company) meets either of the following conditions:
✅ Owns more than 50% of its total share capital; or
✅ Controls the composition of its Board of Directors.

The parent (holding) company has significant control over the subsidiary’s operations, decision-making, and financial reporting.

What is a Joint Venture (JV)?

A joint venture is a business partnership where two or more companies collaborate for a common goal. Although the Companies Act, 2013 does not explicitly define a JV, it is generally understood as a strategic alliance where parties:
✔️ Contribute capital, resources, and expertise
✔️ Share risks and profits
✔️ Make joint decisions as per the JV agreement

A JV can be structured as a company, partnership, or contractual arrangement, depending on the agreement between the parties.

Key Differences Between a Subsidiary and a Joint Venture

Real-Life Examples

🚗 Subsidiary Example:
Maruti Suzuki India Ltd. is a subsidiary of Suzuki Motor Corporation, Japan, where Suzuki holds a majority stake and controls its operations.

🔩 Joint Venture Example:
Tata Steel and Nippon Steel formed a JV in India to manufacture high-quality steel, sharing expertise, investment, and control.