“With ₹48,000 crore in unspent welfare funds and 1.5 crore workers still unregistered, the adequacy of the legal framework is not in question — its implementation is.”
The Government of India has officially notified a 1% cess on the total cost of construction under the Code on Social Security, 2020. Issued under Section 100(1) of the Code, this notification supersedes the 28-year-old notification dated 26 September 1996 — migrating construction worker welfare from a standalone statute into India’s new consolidated labour code architecture.
This is the first cess notification issued under any of the four new labour codes. The development is significant as the Code on Social Security, 2020 consolidates nine separate central legislations into a single statute, extending social security coverage to organised, unorganised, gig, and platform workers alike.
📌 What Is the Construction Welfare Cess?
The construction welfare cess is a levy on the total cost of construction (excluding land value) paid by employers who undertake building and other construction works. The rate is fixed at 1% of the construction cost.
The levy applies to:
- Commercial buildings — regardless of the total cost of construction
- All establishments employing ten or more building workers
- Residential projects costing ₹50 lakh or more (those below ₹50 lakh are exempt, as of 21 November 2025)
The cess is separate from income tax or GST and is specifically ring-fenced for welfare purposes. Collections flow into Building and Other Construction Workers (BOCW) Welfare Funds, managed by state-level welfare boards. These boards disburse benefits including health and medical assistance, accident insurance, maternity support, educational scholarships for workers’ children, housing loans, and pension assistance.
Think of it like this: every time a builder constructs a commercial building or a residential complex costing ₹50 lakh+, they must contribute 1 rupee for every 100 rupees spent (excluding land cost) into a welfare pot for construction workers. That money funds healthcare, insurance, pensions, and education for the labourers who built the structure.
📜 From the 1996 Act to the 2020 Code
The construction welfare cess traces its origins to the Building and Other Construction Workers’ Welfare Cess Act, 1996 (Act No. 28 of 1996), enacted alongside the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996. The original rate notification was issued on 26 September 1996. For nearly three decades, these two statutes formed the legal backbone for construction worker welfare in India.
The Code on Social Security, 2020 (Act No. 36 of 2020) repealed and subsumed the 1996 Cess Act, along with eight other central social security legislations. Most operational chapters of the 2020 Code came into force on 21 November 2025, following notification by the Ministry of Labour and Employment.
Nine laws consolidated: The Code on Social Security, 2020 subsumed the Employees’ Compensation Act 1923, ESI Act 1948, EPF Act 1952, Maternity Benefit Act 1961, Payment of Gratuity Act 1972, Unorganised Workers’ Social Security Act 2008, and the BOCW Cess Act 1996, among others.
✨ Key Provisions of the Notified Cess Framework
Rate and Coverage: The cess is levied at 1% of the total construction cost (excluding land). It applies to all establishments employing ten or more building workers and to commercial buildings irrespective of construction cost. Residential construction costing below ₹50 lakh is exempt.
Self-Assessment Mechanism: Rule 42 of the Social Security (Central) Rules, 2025 introduces a self-assessment mechanism for cess payment. Employers calculate construction cost based on rates specified by the State PWD/CPWD, or on returns submitted to RERA. The self-assessment must be certified by a Chartered Engineer — defined as a person holding an engineering degree and corporate membership of the Institute of Engineers India — and is to be paid in advance at project approval or before commencement.
ESI and Pension Integration: The Centre has announced plans to link the construction welfare cess into the formal social security system, integrating it with ESIC for healthcare benefits and pension schemes for registered construction workers.
| Parameter | Old Framework (1996 Act) | New Framework (2020 Code) |
|---|---|---|
| Legal Basis | BOCW Welfare Cess Act, 1996 | Code on Social Security, 2020 (Section 100) |
| Cess Rate | 1% of construction cost | 1% of construction cost (unchanged) |
| Residential Exemption | Below ₹10 lakh or under 100 sq. m. | Below ₹50 lakh (from 21 Nov 2025) |
| Assessment Method | Government officer assessment | Self-assessment certified by Chartered Engineer (Rule 42) |
| Coverage Scope | Construction workers | Organised, unorganised, gig, and platform workers |
Don’t confuse the rate change with the threshold change. The cess rate remains unchanged at 1% — it has been 1% since 1996. What changed is the residential exemption threshold, which was raised from ₹10 lakh (or under 100 sq. m.) to ₹50 lakh. Also note: the new notification is the first under the four labour codes, not the first cess notification ever.
🌍 Challenges in Implementation
Despite the legislative framework being in place since 1996, implementation has remained chronically weak. Only 5.65 crore workers are registered under the BOCW framework, against an estimated 7.1 crore actively engaged in the sector. The informal, seasonal, and migrant nature of construction employment makes registration and benefit delivery difficult.
On the financial side, cumulative cess collections have crossed ₹1.17 lakh crore, of which approximately ₹48,000 crore remains unspent. The Comptroller and Auditor General (CAG) has flagged persistent under-utilisation across multiple state welfare boards:
- Jharkhand: The board failed to prepare annual budgets for several years and spent only half the available funds between 2017–18 and 2021–22.
- Madhya Pradesh: CAG reported in April 2025 that ₹416 crore from the fund had been diverted to populist schemes unrelated to worker welfare.
The self-assessment mechanism (Rule 42) has drawn criticism from trade union groups, who argue it may reduce actual cess recovery compared to assessment by a government officer, particularly for private projects where employers have an incentive to understate construction costs.
India’s construction sector generates ₹26.27 lakh crore in GVA annually, yet ₹48,000 crore sits unspent in welfare funds while 1.5 crore workers remain unregistered. Does the problem lie in the law, the administration, or both? What structural changes — digital ID, direct benefit transfer, or third-party auditing — might help close this gap?
⚖️ The Four Labour Codes: Broader Reform Context
The construction welfare cess notification is one component of India’s sweeping labour reform through four codes, which together replace 29 central labour laws. All four codes came into effect on 21 November 2025:
- Code on Wages, 2019 — Consolidates four wage-related laws, including the Minimum Wages Act 1948.
- Industrial Relations Code, 2020 — Consolidates three laws governing trade unions, industrial disputes, and standing orders.
- Occupational Safety, Health and Working Conditions Code, 2020 — Consolidates 13 laws related to worker safety.
- Code on Social Security, 2020 — Consolidates nine laws, including the construction cess framework.
Wages (2019) → 4 laws | IR Code (2020) → 3 laws | OSH Code (2020) → 13 laws | Social Security (2020) → 9 laws
Total: 4 codes replacing 29 central labour laws.
🌍 Significance for Workers and the Construction Sector
India’s construction sector is the second-largest employment generator in the economy. In FY 2024–25, nominal GVA from construction reached ₹26.27 lakh crore — a 9.4% increase over the previous year. Government initiatives such as PMAY-U, under which over 1.18 crore houses have been sanctioned and 86.6 lakh completed (as of September 2024), have dramatically increased the volume of construction activity and the cess base.
The integration of the cess into the formal social security architecture, combined with digital measures such as the e-Shram portal for unorganised worker registration, is expected to improve portability of benefits for migrant construction workers — historically among the most vulnerable segments of the labour force.
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The cess is notified under Section 100(1) of the Code on Social Security, 2020, superseding the 1996 notification under the BOCW Welfare Cess Act, 1996.
The new residential exemption threshold is ₹50 lakh, raised from the earlier ₹10 lakh (or properties under 100 sq. m.) under the 1996 framework.
Rule 42 of the Social Security (Central) Rules, 2025 introduces the self-assessment mechanism. The assessment must be certified by a Chartered Engineer.
The four labour codes together replace 29 central labour laws. The Code on Social Security, 2020 alone consolidates nine enactments.
Cumulative BOCW cess collections have exceeded ₹1.17 lakh crore, of which approximately ₹48,000 crore remains unspent.
