Work contract

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This query is : Resolved

Mcgupta (Querist)

25 November 2008 How many types of tax application on work contract of Civil Construction like construction of factory building and what is the rate of tax applicable currently
TDS
Service Tax
VAT
Work contract tax
Any other tax

G Muralidharan

G Muralidharan (Expert)

26 November 2008 Under VAT:

Normally there are 3 methods.

1) Actual materials and actual labour charges are booked, where figures in respect of each project are available.

Here material portion will get taxed at the appropriate rate relevant to each commodity. Labour charges are fully exempt. Here Output tax pertaining to material can be offset against Input tax on purchases.

2) Where the segregation of material and labour element is difficult.

Normally VAT Act provides that material at 85% and 15% towards labour (Quoting from T Nadu VAT). On material element, tax will be levied.Here Output tax pertaining to material can be offset against Input tax on purchases.

3) Under Compounding method:

No segregation of material and labour required. Tax is on the full value consideration at 2%. No input tax credit set off is available.

Service Tax:

1) Normal method: If you pay service tax at 12.36% on the entire billing, you can avail Cenvat Credit on excisable material used.

2) Abatement method: Under Service tax, there will be an abatement of 67% and only 33% gets taxed under service tax. No Cenvat Credit available.

3) On compounding : Total consideration gets taxed at 2% and no Cenvat Credit available.