The Building and Construction Workers Cess

In one line

Building work is taxed at between one and two per cent of the cost of construction, and the money goes to a State Board that spends it on the building workers themselves.

In exam wording: section 100 of the Code on Social Security 2020 levies a cess for the social security and welfare of building workers at a rate not exceeding two per cent and not less than one per cent of the cost of construction incurred by an employer, as the Central Government may notify, collected from every employer undertaking building or other construction work and deposited to the Building Workers' Welfare Board.

Why the law has this at all

Construction is the hardest industry in India to bring inside an ordinary social security scheme, and the reason is worth stating because it explains the whole design.

The workforce is fluid. A labourer works for one contractor this month and another the next, on a site that will not exist in two years. There is no long relationship for a contribution based scheme to attach to.

The employer is temporary too. A building is finished and the establishment dissolves. There is nobody to sue afterwards.

But the work itself is permanent, and visible. Construction happens continuously, it needs approvals, and its cost can be measured.

So the Code does not tax the employment relationship at all. It taxes the construction. The cess is a percentage of the cost of the building, payable by whoever is putting it up, collected where possible through the authority that approves the plans, and paid into a State Board which pays benefits to registered workers whoever employs them. The worker's entitlement follows his registration, not his job.

Some words this chapter uses

Cess is a tax levied for a particular purpose, as distinct from a general tax. Levy is the imposition of the tax; collection is the taking of it. Deduction at source means the payer withholds the tax and remits it directly. Self-assessment means the taxpayer calculates his own liability and pays it. Arrears are amounts overdue. Appellate authority is the officer to whom an appeal lies. Local authority means a municipality, panchayat or similar body.

Section 100: the levy

Section 100(1), the rate. There shall be levied and collected a cess for the purposes of social security and welfare of building workers, at such rate not exceeding two per cent but not less than one per cent of the cost of construction incurred by an employer, as the Central Government may notify from time to time.

The Explanation excludes two things from the cost of construction:

• (a) the cost of land; and
• (b) any compensation paid or payable to an employee or his kin under Chapter VII.