Tax and Compliance Checklist for Government Contractors in Bihar (2026): GST, TDS, Cess and Royalty

A contractor executing works for a Bihar government department in 2026 charges GST at 18% on almost every works contract, because the last concessional rate, for earthwork, ended on 22 September 2025. From each bill the department then deducts 2% GST TDS, income-tax TDS of 1% or 2% under section 393 of the new Income-tax Act, 1% labour welfare cess and, where minor minerals such as sand, stone chips or earth are used, a seigniorage fee. Getting paid in full depends on claiming each of these credits correctly and keeping registration, labour and e-tender papers current. This checklist sets out each deduction and filing for civil, electrical and road contractors working with RCD, BCD, RWD, PHED, BSPHCL and other Bihar bodies.

Deductions from a typical government bill

Deduction	Rate	Law	How you get credit
GST TDS	2% of taxable value (1% CGST + 1% SGST) where the contract exceeds ₹2.5 lakh	Section 51, CGST Act	Accept the entry on the GST portal; it then reaches your electronic cash ledger
Income-tax TDS	1% (individual or HUF contractor) or 2% (firm, company and others)	Section 393(1), Income-tax Act, 2025 (formerly section 194C)	Reflected in your annual tax statement; claimed in the return
Labour welfare cess	1% of the cost of construction	Building and Other Construction Workers Welfare Cess Act, 1996	A cost of the contract; no credit
Seigniorage on minor minerals	10% of the value of minerals in the estimate, unless the State changes the rate	Rule 57, Bihar Minerals Rules, 2019	A cost of the contract
Security deposit or retention	As set in the tender’s bidding document	Contract terms	Refunded after the defect liability period

GST: 18% on government works

• July 2022: works contracts for the Central and State governments and local authorities (roads, bridges, irrigation, pipelines, school and hospital buildings) moved from 12% to 18%. Works for government entities and authorities had already moved to 18% in January 2022.
• September 2025: the remaining concession, for earthwork forming more than 75% of a government contract and the sub-contracts under it, moved from 12% to 18% from 22 September 2025. There is no longer a 5% or 12% rate for government earthwork.
• Exempt work: pure services, and composite supplies where goods are not more than 25% of the value, remain exempt when supplied to the Central or State Government or a local authority for a function of a panchayat or municipality under Articles 243G or 243W. Supplies to government companies and authorities do not get this exemption.
• Place of supply: for work on immovable property, it is where the property is, so a Bihar site means CGST and SGST.
• Who bears a rate increase: for the July 2022 change, Bihar issued an order in January 2024 paying the extra GST on work done after the change for schemes estimated at 12%. For bids quoted “inclusive of all taxes”, the Patna High Court has held that the contractor bears the GST. Read the tax clause of each tender before you quote.

For rates on private construction and the input tax credit rules, see our guide to GST on works contracts and construction services.

Input tax credit for contractors

• Materials: credit on cement, steel, bitumen, cables and other inputs used in government works is available. The block in section 17(5)(d) applies only to construction on your own account.
• Sub-contractors: a main contractor can claim credit on a sub-contractor’s works contract bills, because they are used for a further supply of works contract service.
• Supplier reporting: credit is available only where the supplier’s invoice appears in your GSTR-2B. Check the Invoice Management System every month.
• Audit focus: GST audits of works contractors test purchases against the steel and cement a project should have consumed. Bogus or excess purchase bills are the commonest cause of demands.

GST TDS: claiming the 2%

1. The department deducts 2% of the taxable value (not the GST-inclusive amount) where the value of the contract exceeds ₹2.5 lakh, deposits it and files GSTR-7 by the 10th of the next month.
2. Log in to the GST portal and open Returns, then TDS and TCS credit received.
3. Accept each entry that matches your bill, or reject one with a wrong value or period; from the September 2025 period this can be done invoice by invoice.
4. File the statement. The credit reaches your electronic cash ledger only after filing, and can then pay your GST.
5. Ask the department for its certificate (GSTR-7A) and reconcile it with your receipts each quarter.

Credits left unaccepted are one of the main reasons contractors pay GST in cash twice. Rejected entries go back to the department to correct in its next GSTR-7.

Income tax under the new Act

• TDS: from 1 April 2026, contractor TDS is under section 393(1) of the Income-tax Act, 2025: 1% for an individual or HUF, 2% for others, and 20% if PAN is not given. No deduction is needed where a single payment is up to ₹30,000 and the year’s total is up to ₹1 lakh. Payments credited up to 31 March 2026 stay under the old section 194C. Our note on TDS on contractor payments covers the rates in detail.
• Presumptive tax: an individual, HUF or partnership firm (not an LLP or company) with turnover up to ₹2 crore, or ₹3 crore where cash receipts are 5% or less, can declare profit at 6% of digital receipts and 8% of others under section 58. Declaring less brings compulsory books and audit, and opting out bars the scheme for five years.
• Tax audit: required above ₹1 crore turnover, or ₹10 crore where cash receipts and payments are each 5% or less (section 63). The audit report is now Form 26.
• Cash limits: cash expenses above ₹10,000 to one person in a day are disallowed, cash receipts of ₹2 lakh or more are barred, and cash loans or repayments of ₹20,000 or more attract penalty. Pay labour contractors and suppliers by bank.
• Reconcile TDS: match the TDS in your annual tax statement with the department’s bills before filing, and follow up with the department’s accounts office for missing entries.

Labour cess, minerals and labour licences

• Labour welfare cess: the Bihar Building and Other Construction Workers Welfare Board collects cess at 1% of the cost of construction, deducted by government and public sector bodies from bills and paid to the Board within 30 days. Price your bid to absorb it.
• Seigniorage: under Rule 57 of the Bihar Minerals (Concession, Prevention of Illegal Mining, Transportation and Storage) Rules, 2019, works departments deduct a seigniorage fee of 10% of the value of minor minerals in the estimate from works contractors and deposit it with the district mining officer. The rules were amended twice in 2026; confirm the rate in your agreement. Buy sand and stone only with valid transport challans, because the penalty for illegal transport can run to many times the royalty.
• Labour licence: the Occupational Safety, Health and Working Conditions (Bihar) Rules, 2026, notified on 30 June 2026, replace the old Bihar contract labour and BOCW rules. A contractor engaging contract labour above the threshold needs a licence under the Code; register before work starts, and keep wage, attendance and safety records at site.
• PF and ESI: most departments ask for EPF and ESI registration and challans for workers engaged on the contract.

Registration and e-tender papers

• Contractor registration with the works department (RCD, BCD, RWD, WRD and others) under the Bihar Contractors Registration Rules, by class, which limits the value of work you can bid for. Track the validity of the certificate and renew before it lapses.
• Blacklisting: a forged experience or turnover certificate can lead to long debarment; the Patna High Court upheld a ten-year blacklisting for a false work-experience certificate in 2026.
• e-Procurement: tenders are on eproc2.bihar.gov.in. You need a Class III digital signature certificate with signing and encryption, PAN, GSTIN, EPF and ESI codes, income tax returns and a CA-certified turnover statement, besides the tender fee and EMD paid online. Udyam-registered firms may get EMD relief where the tender allows.

Monthly and yearly checklist

1. Raise each bill with GST at the right rate and the taxable value shown separately.
2. Accept GST TDS entries on the portal and file the statement each month.
3. Reconcile purchases with GSTR-2B before filing GSTR-3B.
4. Keep a site-wise register of steel, cement and minerals with challans.
5. Match income-tax TDS with bills every quarter.
6. Deposit EPF and ESI for site workers on time and keep the challans for the department.
7. Renew contractor registration, labour licence and DSC before they expire.
8. Get the tax audit and turnover certificate done early, as tenders ask for them.

Frequently asked questions

What is the GST rate on government works contracts in Bihar?

18% for practically all works contracts for government departments and bodies, including earthwork from 22 September 2025. Pure services and low-material work for a panchayat or municipal function supplied to government or a local authority can be exempt.

How much GST TDS is deducted from a contractor’s bill?

2% of the taxable value, split 1% CGST and 1% SGST, where the contract value exceeds ₹2.5 lakh. The contractor must accept the credit on the GST portal to use it.

Which section covers TDS on contractors from April 2026?

Section 393(1) of the Income-tax Act, 2025, at 1% for individuals and HUFs and 2% for others. It replaces section 194C of the 1961 Act.

Is labour cess deducted from government contractor bills in Bihar?

Yes. Government and public sector bodies deduct 1% of the cost of construction as building workers’ welfare cess and pay it to the Bihar Board.

TAXAJ’s Bihar team handles GST, TDS reconciliation, books, tax audits and tender paperwork for contractors across Bihar. See our page for clients in Patna or our Darbhanga office.

Last updated 26 October 2026. Sources: Notification 11/2017-Central Tax (Rate) as amended by Notifications 15/2021, 03/2022 and 15/2025; Notification 12/2017-Central Tax (Rate), entries 3 and 3A; CGST Act, 2017, sections 16, 17 and 51; IGST Act, 2017, section 12(3); Notifications 33/2017 and 50/2018-Central Tax; GST portal user guide on TDS and TCS credit; Income-tax Act, 2025, sections 58, 63 and 393; Building and Other Construction Workers Welfare Cess Act, 1996 and Cess Rules, 1998; Bihar Minerals (Concession, Prevention of Illegal Mining, Transportation and Storage) Rules, 2019, Rule 57; Bihar Contractors Registration Rules, 2007; Occupational Safety, Health and Working Conditions (Bihar) Rules, 2026; Patna High Court, CWJC 5549/2024 and CWJC 19292/2025. General information only; check the tax and deduction clauses of your own tender with us.