Works contract

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RAHUL (Querist)
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25 January 2014 one of my client(say Mr X) who is a builder has entered into an agreement to construct 4 floors on the plot of another person in haryana who is the landowner( say Mr Y) Mr X will bear all the cost of construction. Moreover he will pay Rs 1cr to the landowner.The consideration which he will get from Mr Y is 1 floor.GPA for land will not be signed. I know it is works contract under service tax as well as Haryana Vat .My issue is that how should I calculate my taxable turnover on which I have to pay tax? is it by adding a profit margin on the materials or by taking circle rate of construction in that area ? and when do I have to pay vat and service tax, whether at time of regstn deed of floor which I will be getting or monthly/quarterly ? Thanks in advance

MJ Krishnamurthy

MJ Krishnamurthy (Expert)
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25 January 2014 Mr Rahul :
This is a bit of difficult case in works contract.If in the agreement specific value of the construction to be undertaken and the value of the I floor to be handed over to the contractor,then that value is to be taken as value of the contract.In the agreement details such as size and value of land,total floor area to be built,facilities to be made,kind of materials to be used,amount of total cost and the value of the I floor to be given by the land owner as consideration for construction work done,should all be set out.In order to avoid any disputes and controversies this kind of agreements will spell out all relevant details. On this basis whatever value of construction can be decided that becomes the gross receipts for contract.If not, the other way is to add profit of 20% to the various expenses made in the construction work on material,labour,site expenses,taxes,office expenses etc to arrive at the gross value.VAT is to be paid on the material+profit value and ST is to be paid on the labour and services(hiring of machines,etc)+profit amount.If these amount can not be accounted accurately,a a ratio of 70:30 between material and labour can be taken for tax payments under VAT and ST Acts. VAT and ST are to be paid quarterly. If there are any other options to estimate the taxable amounts that can also be followed ....mjk