VAT for construction co

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R.KANDASUBRAMANIAN

R.KANDASUBRAMANIAN (Querist)
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04 October 2009 how to determine VAT liability for construction companies

SARATHY RP

SARATHY RP (Expert)
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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

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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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 %.

R.KANDASUBRAMANIAN

R.KANDASUBRAMANIAN (Querist)
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04 October 2009 thanks for your reply. how to claim input credit for all material purchases. Is it possible

SARATHY RP

SARATHY RP (Expert)
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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

R.KANDASUBRAMANIAN

R.KANDASUBRAMANIAN (Querist)
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10 October 2009 Dear Mr.Sarathy,

thanks for your reply. It is helpful to me

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