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VAT & ST in case of contractor

Biraj (Proprietor) (103 Points)

09 July 2010

Hello.

Pl. inform me regardin applicability of vat and service tax in case of construction contractor.

rate also

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Sachin Jain (Manager- Finance & Accounts) (42 Points)
Replied 10 July 2010

Receipt from Construction contract is subject to WCT on material part involved. Also service tax is applicable on the labour component including margin. This can be understood by the following example:

A- Contractor

B- Client

Suppose A purchased material worth Rs 100 for the purpose of contract Plus VAT of 12.5%. He also incurred Rs 30 on labour. Total billing done by A to B is Rs 208.24 including Service Tax @ 4.12%. Now the VAT % Service Tax shall be calculated as follows:

Service Tax= A will deposit Service Tax of Rs 8.24 to Service Tax Department on recepit of billing amount from B

VAT: Initially B will deduct WCT on the whole billing amount along with TDS. Let us assume WCT as 4% & TDS as 2%. so B will pay Rs 188 to A.

At the time of assessment, A will calculate his VAT liability. Suppose VAT Rate is 10%; thus VAT Liability of A will be 10% of Material Cost Plus Margin i.e. 100 Plus (57.50*100/130) = 144.23* 10%

Total VAT Liability= 144.23*10% = 14.42

Less Input Tax Credit on Purchases = 12.50

Less WCT Deducted = 8.33

Refund from Sales Tax Department = Rs 6.41