Work contract
This query is : Resolved
15 January 2011
Dear All,
As i am running business of Contractor registered with Indian Oil Corp. Ltd (public sector/govt. undertaking) which includes activities like const. / repair of roads, ecectrical pannels/cables, tank installation, Fabrication, building etc (all the work at petrol pumps). I am paying VAT 4% which is deducted at source & TDS. All the rates of IOCL is inclusive of all taxes.
Plz let me know is the service tax applicable on us & if yes how much & from which date.
plz let out a easy way as we have very little profits in our business.
As i am running business of Contractor registered with Indian Oil Corp. Ltd (public sector/govt. undertaking) which includes activities like const. / repair of roads, ecectrical pannels/cables, tank installation, Fabrication, building etc (all the work at petrol pumps). I am paying VAT 4% which is deducted at source & TDS. All the rates of IOCL is inclusive of all taxes.
Plz let me know is the service tax applicable on us & if yes how much & from which date.
plz let out a easy way as we have very little profits in our business.
16 January 2011
Yes service tax is applicable on your work since 10.09.2004.
Present rate is 10.3%, however if you are going for composite scheme rate is 4.12%.
Service tax does not depend on profit margin. You will get the credit of tax which you have paid on input.
Present rate is 10.3%, however if you are going for composite scheme rate is 4.12%.
Service tax does not depend on profit margin. You will get the credit of tax which you have paid on input.
16 January 2011
i think it was applicable from 2006 or 2007. I read somewhere if you are working for govt you can pay 2% for civil contractors. else i also read they can all opt in for WC and pay 2.06 % after deducting the amount on which VAT is paid. Further they are admissible for the credits on capital goods as well as input servcies.
Also we are not getting any benifit on input tax, as 4% vat is applicable on us, 4% isdeducted at source & what ever we pay extra at purchasing should be refunded but the sales tax department doesn't pay refund.
plz let me way out with minimum tax
Also we are not getting any benifit on input tax, as 4% vat is applicable on us, 4% isdeducted at source & what ever we pay extra at purchasing should be refunded but the sales tax department doesn't pay refund.
plz let me way out with minimum tax
03 August 2025
Here’s a simplified breakdown to help you with your contractor business registered with Indian Oil Corp. (IOCL), regarding Service Tax and VAT, based on your query from 2011:
1. Is Service Tax applicable on your work?
Yes, Service Tax has been applicable on works contract services since 10th September 2004.
The current service tax rate (around 2011) is 10.3%, which includes the basic service tax plus education cess and secondary education cess.
2. What about the composite scheme?
You can opt for the Composite Scheme for Works Contract, where you pay tax at a lower rate — typically around 4.12% (half the rate of normal service tax),
But this applies only if VAT is paid on the material portion separately, and you exclude the material cost from the taxable value under service tax.
This is helpful especially if VAT is deducted at source on your sales.
3. VAT issues:
You mentioned paying 4% VAT, which is deducted at source (TDS) by IOCL.
VAT paid on purchases should ideally be claimed as Input Tax Credit (ITC) or refund, but often government departments may delay or deny refunds.
This is a separate issue from Service Tax, but important to manage cash flows.
4. Minimizing tax liability:
Opt for Composite Scheme if eligible: It reduces your service tax rate significantly (to around 4.12%) but you must maintain proper records separating material and labor costs.
Maintain clear records of VAT paid so you can claim refunds or credit wherever possible.
Service Tax is on gross value (contract amount less materials on which VAT is paid).
Consider consulting a tax professional to help structure your invoices and books to optimize tax benefits.
5. Other notes:
Service tax is not linked to profit — it’s levied on turnover (contract value).
You can claim credit on input services and capital goods under service tax law to reduce tax payable.
Keep proper documentation of all purchases, payments, and taxes deducted at source.
1. Is Service Tax applicable on your work?
Yes, Service Tax has been applicable on works contract services since 10th September 2004.
The current service tax rate (around 2011) is 10.3%, which includes the basic service tax plus education cess and secondary education cess.
2. What about the composite scheme?
You can opt for the Composite Scheme for Works Contract, where you pay tax at a lower rate — typically around 4.12% (half the rate of normal service tax),
But this applies only if VAT is paid on the material portion separately, and you exclude the material cost from the taxable value under service tax.
This is helpful especially if VAT is deducted at source on your sales.
3. VAT issues:
You mentioned paying 4% VAT, which is deducted at source (TDS) by IOCL.
VAT paid on purchases should ideally be claimed as Input Tax Credit (ITC) or refund, but often government departments may delay or deny refunds.
This is a separate issue from Service Tax, but important to manage cash flows.
4. Minimizing tax liability:
Opt for Composite Scheme if eligible: It reduces your service tax rate significantly (to around 4.12%) but you must maintain proper records separating material and labor costs.
Maintain clear records of VAT paid so you can claim refunds or credit wherever possible.
Service Tax is on gross value (contract amount less materials on which VAT is paid).
Consider consulting a tax professional to help structure your invoices and books to optimize tax benefits.
5. Other notes:
Service tax is not linked to profit — it’s levied on turnover (contract value).
You can claim credit on input services and capital goods under service tax law to reduce tax payable.
Keep proper documentation of all purchases, payments, and taxes deducted at source.
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