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