Government of India Notifies 1% Cess on Construction Cost under Code on Social Security, 2020

Key Facts

• The Government of India has notified a 1% cess on the total construction cost incurred by employers for building and other construction work under the Code on Social Security, 2020, replacing the earlier cess notification dated 26 September 1996.
• The cess is levied at 1% on the total construction cost paid by employers, applicable to all commercial buildings regardless of construction cost.
• From 21 November 2025, individuals constructing residential houses costing less than ₹950 lakh will be exempt from paying the cess. This replaces the earlier exemption threshold of ₹910 lakh or residential properties above 100 square meters.
• Collections made via the cess are utilized exclusively for welfare measures of construction workers such as health benefits, financial aid, insurance, and educational support for their children.
• The welfare funds are administered by State Building and Other Construction Workers Welfare Boards set up under the welfare framework for workers in the unorganized sector.
• Section 100(1) of the Code on Social Security, 2020, provides the legal foundation for this cess.
• Rule 42 of the Draft Code on Social Security (Central) Rules, 2025, introduces a self-assessment mechanism for cess payment, requiring certification from a chartered engineer.
• The Central Board of Direct Taxes has granted income-tax exemption under Section 10(46) to the West Bengal Building and Other Construction Workers Welfare Board as of 14 January 2026.

Background & Context

The Code on Social Security, 2020, consolidates and simplifies social security legislation in India, replacing multiple older laws including the Building and Other Construction Workers Welfare Cess Act, 1996. This reform strengthens social security for unorganized sector workers including construction workers by standardizing cess rates between 1% to 2% (with the Central Government specifying 1%) of construction costs. The cess helps fund welfare schemes tailored to this vulnerable workforce.

The previous system had registration thresholds and exemptions based on area or cost which have now been revised to updated limits to enhance compliance and coverage. The Self-assessment method for cess payment introduced aims to streamline collections and integrate the cess into broader social security systems including pension and Employees’ State Insurance Corporation healthcare benefits.

Why This Matters for Exams / Exam Relevance

This notification is significant for understanding recent reforms in Indian labor and social security law, especially concerning the welfare of unorganized labor sectors. Students should be aware of changing cess rates, applicable exemptions, legal provisions under the Code on Social Security 2020, and institutional roles such as the Building and Other Construction Workers Welfare Boards. Questions may focus on the acts and rules governing construction labor welfare, cess collection mechanisms, and updates effective from November 2025.

Points to Remember

• The cess rate is fixed at 1% of construction cost under the Code on Social Security, 2020.
• The cess applies to all commercial building construction costs with no cost threshold.
• Exemption threshold for individual residential constructions has been increased to less than ₹950 lakh effective 21 November 2025.
• Section 100(1) of the Code provides the statutory basis for the cess notification.
• Building and Other Construction Workers Welfare Boards at State level administer the cess funds for workers’ social security and welfare.
• Employers must follow a self-assessment and payment process certified by a chartered engineer as per draft rules effective 2025.
• West Bengal’s Welfare Board has received income-tax exemption under Section 10(46) starting 14 January 2026, highlighting fiscal incentives.