Composition scheme under works contract (construction)

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Prerna Shetty (article) (Querist)
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25 April 2013 Is any set-off available under composition scheme for works contract construction business?

If yes,is it as per rule 53(4)b of MVAT Rules ?

Are there any other set off provision if 5% composition scheme is opted under mvat act?

Prerna Shetty (article)

Prerna Shetty (article) (Querist)
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25 April 2013 kindly reply

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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20 July 2024 Under the Maharashtra Value Added Tax (MVAT) Act, the Composition Scheme for works contract (construction) is available where the dealer can opt to pay tax at a reduced rate on the value of works contract. Here are the key points regarding set-off provisions under the Composition Scheme for works contract in Maharashtra:

1. **Set-off Provision**:
- If a dealer opts for the Composition Scheme under Rule 58 of the Maharashtra Value Added Tax Rules, 2005, they are not entitled to claim set-off on input tax (tax paid on purchases).
- According to Rule 53(4)(b) of the MVAT Rules, set-off is generally not available under the Composition Scheme. This means that the tax paid on purchases cannot be deducted from the tax payable under the Composition Scheme.

2. **Other Set-off Provisions**:
- Under the Composition Scheme, the taxable turnover is determined after allowing for deductions for labor and services charges and for goods used in execution of the works contract as per Rule 53(4)(b). However, this does not amount to set-off of input tax credit on purchases made.

3. **Composition Scheme Rate**:
- As of the last update, the Composition Scheme rate for works contract (construction) under MVAT in Maharashtra is 5% of the gross turnover.

4. **Applicability and Compliance**:
- The Composition Scheme is optional and is applicable to dealers whose turnover does not exceed the prescribed limit (typically Rs. 50 lakh).
- Dealers opting for the Composition Scheme must comply with the conditions and procedures specified under the MVAT Act and Rules.

In summary, while the Composition Scheme provides a simplified tax payment mechanism, it does not allow for the set-off of input tax credit. The tax liability is determined based on the gross turnover at the prescribed rate (currently 5% for works contract). For detailed and updated guidance, it is advisable to consult with a tax professional or directly refer to the latest provisions under the MVAT Act and Rules.

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