Vat rate on works contracts

This query is : Resolved

sharad (Querist)
Follow

06 August 2012 sir please tell me what is rate of vat on works contract please elaborate with example of Rs 100 and also service tax reverse charge mechanism

RENGARAJ R.K

RENGARAJ R.K (Expert)
Follow

06 August 2012 See Notn no.24/2012 and amended Rule 2A regarding valuation.
WORKS CONTRACT

i . As at present, first determination will be the value of service being the total amount charged for the contract reduced by the value of property transferred in goods for State VAT purpose;

ii. If value of goods is not intimated to State VAT, the assessees can still calculate the actual value of goods and the same will be relevant to deduce the value of the service involved in the works contract;

iii. If the value is not so deduced, and not merely as an option, the value shall be specified percentage of the total value as follows:

a. for original works: 40% of the total amount;

b. other contracts: 60% of the total amount;

c. for contracts involving construction of complex or building for sale where any part of the consideration is received before the completion of the building: 25% of the total amount

Original works will include all new constructions and all types of additions and alterations to abandoned or damaged structures to make them workable.

Works contract service has now been brought under reverse charge mechanism under Notn No.30/2012. According to this, service provider (individual, firm) has to pay service tax 50% and service receiver 50% after working out the taxable turnover i.e after eligible abatement as per notification No.24/2012.

E.g Works contractor has to pay 50% of his bill say Rs.100. 50% is Rs.50.00 and hence he has to pay service tax 12.36% on 40% of Rs.50.00 i.e Taxable turnover is Rs.20/- and tax is Rs.2.47/- to the govt. The service receiver also has to pay the equal amount to the govt.