Wct deduction doubts

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Sameer Sunil Sawant (Querist)
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08 February 2014 I want to know if any contractor who is providing supply as well as labour but provide separate bills for material by charging full amount of vat i.e.5% or 12.5% as the case maybe and separate bill for labour by charging 12.36% service tax. Now in this case WCT should be deducted on what amount? Should it be deducted on composite amount or only on labour bill? Because TDS will get apply only on labour bill amount. Please guide.

Sameer Sunil Sawant

Sameer Sunil Sawant (Querist)
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19 February 2014 Please someone guide me.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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03 August 2025 This is a great and very practical question — especially common in civil contracts, EPC contracts, or turnkey works.
🔍 Your Scenario:
Contractor raises:
One bill for material supply (charging full VAT — 5%/12.5%)
Another bill for labour/service portion (charging 12.36% service tax)
You want to know whether WCT (Works Contract TDS) should apply on:
Entire contract value (composite amount)
Or only labour/service bill?
✅ Correct Answer:
WCT TDS is deductible only on the taxable turnover for works contract — and if the contract is clearly bifurcated, then:
🧾 If Proper Bifurcation is Evident:
WCT TDS should be deducted only on the labour/service portion.
The material bill, being a sale of goods with VAT, should not attract WCT TDS — provided:
The materials are clearly identified and invoiced separately.
The property in goods is transferred (i.e., sale is complete).
VAT is properly charged and paid.
✅ This bifurcation helps the contract qualify as two distinct contracts or a divisible works contract.
🚫 If No Proper Agreement or Bifurcation Exists:
If the contract is composite (single contract, even with two bills), and not properly split in the contract document, WCT may be deducted on the entire gross amount, as many deductors (especially government entities) err on the side of caution.
📌 Key Court Rulings:
Larsen & Toubro Ltd. vs State of Karnataka (SC, 2013): Recognized works contract even in turnkey arrangements. Allowed apportionment.
Kone Elevator (India) Ltd. (SC, 2014): Differentiated supply and installation contracts.
🧾 Practical Advice:
Condition WCT TDS Applicability
Separate contracts or clear bifurcation Deduct only on labour portion
Single contract with two invoices but no contract split Deduct on entire contract value
No VAT charged separately on material Treated as composite — WCT applies on full amount
⚠️ TDS under Income Tax Act (194C):
TDS under Sec 194C applies on labour/service portion only.
Not on material portion if it's a sale of goods.
✅ Best Practice:
Always have a clear contract agreement that splits the scope and value of supply and labour.
Raise separate invoices for materials (with VAT) and labour (with service tax/GST).
Retain evidence of material procurement and transfer of property.

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