VAT for construction co
This query is : Resolved
04 October 2009
how to determine VAT liability for construction companies
04 October 2009
Dear Mr Kandasubramanian,
One simple answer is arrive at NTO and use a calculator to determine the VAT.
But arriving at NTO is the most complicated one. There are many ways in which the NTO is arrived.
1. Composition method of discharge - Here the VAT is discharged on gross receipts without any deductions / exemptions, except for inter-state goods used in execution & in pursuance of the specific works contract. The normal VAT is 4% in these cases.
2. Non-compositon using abatement route. Here, every state VAT rule specifies the deduction permissible for various classes of contracts. From the GTO avail the deduction and consider the balance as NTO and discharge VAT as per the schedule rate on the balance TO.
3. Non composition merit route. Here, for labour charges / services rendered during the exeuciton of works contract, the contractor maintains the records. On the balance TO, claim exemption on the inter-state goods used in execution of works contracts. The balance is treated as taxable TO. On this taxable TO apply schedule rate of VAT and dishcarge the same.
All these routes have their own merits and demerits. Based on the contract composition, one has to judiciously select the method of discharge.
There are volumes written on arriving at taxable TO. Hence, without a case study and studying the provisions of a VAT Act / Rules applicable to that contract(every state has its own ACT / Rule and it varies from each other), it is impossible to frame a general guideline other than the one given above.
Thanks.
Sarathy
One simple answer is arrive at NTO and use a calculator to determine the VAT.
But arriving at NTO is the most complicated one. There are many ways in which the NTO is arrived.
1. Composition method of discharge - Here the VAT is discharged on gross receipts without any deductions / exemptions, except for inter-state goods used in execution & in pursuance of the specific works contract. The normal VAT is 4% in these cases.
2. Non-compositon using abatement route. Here, every state VAT rule specifies the deduction permissible for various classes of contracts. From the GTO avail the deduction and consider the balance as NTO and discharge VAT as per the schedule rate on the balance TO.
3. Non composition merit route. Here, for labour charges / services rendered during the exeuciton of works contract, the contractor maintains the records. On the balance TO, claim exemption on the inter-state goods used in execution of works contracts. The balance is treated as taxable TO. On this taxable TO apply schedule rate of VAT and dishcarge the same.
All these routes have their own merits and demerits. Based on the contract composition, one has to judiciously select the method of discharge.
There are volumes written on arriving at taxable TO. Hence, without a case study and studying the provisions of a VAT Act / Rules applicable to that contract(every state has its own ACT / Rule and it varies from each other), it is impossible to frame a general guideline other than the one given above.
Thanks.
Sarathy
04 October 2009
Very nice and comprehensive reply. But Clause 1 of the reply needs a correction. 4 % is not the normal rate. For example in Kerala state ( as per KVAT Act,2003) the rate is 3.03 %.
04 October 2009
thanks for your reply. how to claim input credit for all material purchases. Is it possible
10 October 2009
Dear Mr Kandasubramanian,
ITC is allowed on purchase of goods from a local registered dealer and then used in the execution of works contracts. However, there are certain restrictions like
1. for composition method of discharge there is no ITC benefit.
2. The %-age of ITC eligible for set-off
would be different. for example in AP it is 90%.
Every State has its own Rules and we have to study the local VAT enactment to get more clarity.
Thanks.
Sarathy
ITC is allowed on purchase of goods from a local registered dealer and then used in the execution of works contracts. However, there are certain restrictions like
1. for composition method of discharge there is no ITC benefit.
2. The %-age of ITC eligible for set-off
would be different. for example in AP it is 90%.
Every State has its own Rules and we have to study the local VAT enactment to get more clarity.
Thanks.
Sarathy
10 October 2009
Dear Mr.Sarathy,
thanks for your reply. It is helpful to me
thanks for your reply. It is helpful to me
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