WORK CONTRACT TAX

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Ramesh B. Uplana (CA)

Ramesh B. Uplana (CA) (Querist)
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14 May 2008 WHAT IS THE DEFINATION OF WCT AND WHITCH % CHARGES IN WHITCH ITEM

Amit Sharma

Amit Sharma (Expert)
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14 May 2008 Dear Ramesh,

This will help you alot,

Whether works contractor is a dealer?
Yes. Works contractor is a dealer.

What is the taxable event in case of execution of work?
As in the case of any other dealer, the taxable event takes place when there is transfer of property in goods (in the same form or in any other form) i.e. when the goods are appropriated to the work being executed.
How the taxable turnover of a works contractor is determined?
The taxable turnover of a works contractor is determined by deducting the expenses incurred towards labour and services from the gross value received or receivable against the execution of the work.
When the works contractor does not maintain accounts of the expenses on labour and services, how such expenses can be determined?

When expenses towards labour and services incurred by a works contractor are not available and claims are made on such account, then the standard rate as specified in the appendix to Orissa Value Added Tax Rules, 2005 shall be applied.
What is the rate of tax applicable to the works contract?
There is no specific rate of tax for works contract.
Goods used in the execution of works contract are deemed sale of such goods.
When goods are sold in the execution of works contract, the rate of tax applicable to the goods shall be the rate of tax applicable to such goods.
Can a works contractor claim input tax credit?
Yes. A works contractor can claim input tax credit.

What are the goods eligible for input tax credit?
The input tax credit is available on the purchase of goods used in the execution of works contract.

Can a works contractor claim input tax credit on opening stock?
A works contractor is entitled to input tax credit on the opening stock as on 01.04.2005.

Whether capital goods purchased for execution of works are eligible for input tax credit?

No. Capital goods purchased for execution of works are not eligible for input tax credit.

Is there any composition scheme for the works contractors?
Yes. There is a composition scheme for the works contractors.

What are the conditions required to be satisfied to avail of composition of tax by a works contractor?

The conditions are –
a) The works contractor has been a registered dealer under the Orissa Sales Tax Act, 1947 or the Act for the whole of the preceding year; and
b) The works contractor furnished returns for all the tax period of the preceding year within the due date.

What is the procedure to apply for composition of tax by a works contractor?

A works satisfying the conditions of eligibility for payment of tax by composition,
a) shall make an application in Form VAT 601;
b) the application shall be accompanied with;
i. details of works executed,
ii. gross value of the works executed,
iii. tax deducted at source,
iv. tax assessed, if any,
for the preceding year;
e) the application shall be made by the end of June of the year;
d) the application shall be made to the registering authority having jurisdiction.

How permission is granted for payment of tax by composition?
If the application is found to be correct and complete and the eligibility criteria are satisfied, permission for payment of tax By composition is granted by the registering authority in Form VAT 602.
Is there any monetary limit for application of the composition scheme?
No. There is no monetary limit. The scheme is applicable irrespective of the gross value of the works executed.
Is the option exercised for payment of tax by composition is final?
Option once exercised shall remain valid for three consecutive years.

What is the rate of tax applicable to a works contractor under the composition scheme?

The rate of tax applicable is 4% on 60% of the gross value of the works received or receivable.
In addition, if purchases of goods are made from unregistered dealers or persons, the purchase price of such goods shall be subject to tax at the applicable rate and the dealer shall be required to pay such tax.
Is there any provision for deduction of tax at source for works contactors under the composition scheme?

Yes. A works contractor under the composition scheme is required to intimate in Form VAT 603-A,
a) the name and address of the deducting authority; and
b) the details of works being executed under each deducting authority
On the basis of information so furnished, the deducting authority shall be intimated in Form VAT 603 to deduct tax at source,
i. at the rate of 4%,
ii. on a 60% of the gross value of the work.
Can a works contractor under the composition scheme be assessed to the best of judgment?

Yes. If the assessing authority is satisfied on the basis of Audit visit report that any works contactor availing composition of tax,
• has suppressed the gross value of the works received or receivable against works contract executed during any tax period or tax periods is under- declared;
the works contractor shall be assessed to the best of judgment on the sale of goods at the applicable rate instead of the compounded rate.

Hope you are clear now.