GST on MPLAD Scheme: What You Need to Know
A recent recommendation by a Parliamentary Standing Committee has sparked renewed debate over GST on MPLAD scheme funds. The panel urged the government to exempt GST on MPLAD-funded projects, claiming that tax outgo reduces the overall impact of the ₹5 crore annual allocation per MP.
But the government has made its position clear: no exemption for now. GST—often up to 18%—continues to apply to works executed under the scheme. Let’s break this down.
What is the MPLAD Scheme?
- Full Form: Members of Parliament Local Area Development Scheme
- Started in: 1993
- Administered by: Ministry of Statistics and Programme Implementation (MoSPI)
- Purpose: Allows MPs to recommend development works in their constituencies, with a focus on durable assets like schools, roads, drinking water, etc.
- Annual Fund per MP: ₹5 crore (post-COVID restoration)
Why GST on MPLAD Scheme Spending?
Even though the funds are government-allocated, the works are executed by implementing agencies (PWD, Zila Parishads, etc.) who hire contractors. These contracts are subject to GST at rates applicable to construction or services provided, generally between 12% and 18%.
Key Issues Raised by the Parliamentary Panel
- GST reduces the effective usable funds
E.g., on a ₹1 crore project taxed at 18%, ₹18 lakh goes as GST — reducing funds available for actual development work. - Request for GST exemption on public works funded through MPLADS
Especially for essential services like toilets, drinking water facilities, etc. - Demand to increase the annual fund limit
The ₹5 crore cap, according to the panel, does not reflect current cost structures. They suggested revisiting it soon.
Government’s Response: Status Quo
As per the official reply tabled in Parliament:
- No current plan to remove GST on MPLAD spending
- Fund limit revision will be considered post a full review of the scheme in 2026
- Implementation agencies expected to plan within the allocated budget, including applicable taxes
Legal and Policy Context
- GST is levied as per the CGST Act, 2017 on the supply of goods or services, regardless of funding source
- No exemption notification issued under Section 11 of CGST Act for MPLADS-related works
- Relevant Case Law: CCE v. Larsen & Toubro Ltd. (SC) – even government-funded contracts are liable to GST if a taxable service is provided by a contractor
Practical Tip for MPs and Implementing Bodies
Plan with GST in mind. While the demand for exemption is valid, until a notification is issued, executing agencies should structure tenders with GST-inclusive budgets to avoid shortfalls.
Summary
The government has refused to exempt MPLAD scheme works from GST, despite a parliamentary panel’s request. GST of up to 18% continues to apply on MPLADS-funded projects. Any fund increase or exemption review may only happen after the scheme’s reassessment in 2026.
FAQs
Q1. Why is GST charged on MPLAD scheme works?
Because contracts are executed by third parties who supply taxable goods or services, making it subject to GST under existing laws.
Q2. Can GST be claimed back by the government on such works?
In most cases, no. Since the works are not for furtherance of business, ITC is not claimable.
Q3. What is the GST rate applicable?
Usually 12% to 18%, depending on the nature of the work (construction, civil contracts, etc.).