A subcontractor agreement in India is governed primarily by the Indian Contract Act, 1872 (general contract law) and various sector-specific legislation. The Contract Labour (Regulation and Abolition) Act, 1970 is the primary statute governing subcontracting: it applies where a contractor employs 20 or more contract workers (threshold varies by state notification). Both the principal employer and contractor must register under the Act (ss. 7 and 12), and the contractor must obtain a licence.
The Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 applies to construction subcontracting. It mandates registration of establishments employing 10+ building workers, contributions to the Building and Other Construction Workers Welfare Cess (1% of construction cost under the Cess Act, 1996), and compliance with safety and welfare provisions including drinking water, latrines, creches, and first-aid facilities.
Payment terms must account for: TDS (Tax Deducted at Source) under the Income Tax Act, 1961—section 194C requires TDS at 1% for individual/HUF subcontractors and 2% for others on payments exceeding ₹30,000 (single) or ₹1,00,000 (aggregate) per financial year. GST applies at 18% for most services and 12% for construction of affordable housing (CGST Act, 2017). The agreement itself is subject to stamp duty under the Indian Stamp Act, 1899 (or state stamp acts), with rates varying from 0.1% to 1% depending on the state.
The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act) and the Employees’ State Insurance Act, 1948 (ESI Act) may apply to the subcontractor’s workers. The principal employer is ultimately liable for compliance if the contractor defaults (s. 20 of the Contract Labour Act).
Key contractual provisions should include: scope with reference to applicable IS (Indian Standards), RERA compliance for real estate projects, arbitration under the Arbitration and Conciliation Act, 1996 (as amended 2015, 2019, 2021), and force majeure.