Work contract service
This query is : Resolved
20 April 2013
In Work Contract Service if assessee has opted for paying service tax under composition scheme(i.e. 40%, 60% & 70% taxable)than in mid-year assessee can pay service tax at regular scheme i.e. @ 12.36%
20 April 2013
In my opinion-
option to pay tax on 40%, 60% or 70% is not a composition scheme. these % are given to take service part on assumptive basis when actual bifurcation of material and service part is not possible.
And these option are available for "a works contract", so if you can determine acual service portion of 1 works contract then you can pay service tax on such part @12.36% and if you can not determine actual service protion in 2nd works contract then you can pay service tax on assumptive reduced value. But practically it is a difficult task to do like this. So better go for 1 option ( either 12.36% on reduced assumptive value or 12.36% on actual service portion calculated). You can opt only 1 option for a single contract of course.
option to pay tax on 40%, 60% or 70% is not a composition scheme. these % are given to take service part on assumptive basis when actual bifurcation of material and service part is not possible.
And these option are available for "a works contract", so if you can determine acual service portion of 1 works contract then you can pay service tax on such part @12.36% and if you can not determine actual service protion in 2nd works contract then you can pay service tax on assumptive reduced value. But practically it is a difficult task to do like this. So better go for 1 option ( either 12.36% on reduced assumptive value or 12.36% on actual service portion calculated). You can opt only 1 option for a single contract of course.
20 April 2013
fully agreed
20 April 2013
I am asking that assessee can switch over to assumptive to regular scheme in a particular year.
20 April 2013
as Mr. vipin said these are not the schemes.
the earlier composition schemes are now no more available. only this 40 60 70 % taxation is allowed uder rule 2A of STVR.
yes you can change to other options, but cenvat credit will be allowed and disallowed accordingly.
also the books need to be maintained accordingly.
the earlier composition schemes are now no more available. only this 40 60 70 % taxation is allowed uder rule 2A of STVR.
yes you can change to other options, but cenvat credit will be allowed and disallowed accordingly.
also the books need to be maintained accordingly.
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20 April 2013
Can you give me any circular /notification no. related to this? How books is to be maintained?
03 August 2025
Here's a clear explanation about service tax on work contract services and switching between valuation methods:
Background:
Earlier, composition schemes existed for work contract services.
Post amendment (especially after Rule 2A of Service Tax Valuation Rules, 2006), the tax is payable on a presumptive basis — 40%, 60%, or 70% of the contract value depending on the type of work (original or other than original).
This presumptive valuation is not a composition scheme, but a valuation method when you cannot bifurcate goods and services accurately.
Can an assessee switch between valuation methods mid-year?
Yes, the assessee can switch between paying service tax on the presumptive value (40%, 60%, 70%) or on the actual service portion if properly segregated.
When switching, Cenvat credit availability changes accordingly (if paying on actual service portion, credit is allowed on inputs/input services; on presumptive basis, credit is restricted).
Proper books of accounts must be maintained to support whichever method is chosen.
Official Reference:
Rule 2A of the Service Tax (Determination of Value) Rules, 2006 governs the valuation of work contract services.
Circulars such as Circular No. 137/7/2011-ST dated 7-3-2011 provide clarifications on valuation and credit.
For switching, no specific circular prohibits changing methods, but consistent accounting and record-keeping is necessary.
How to maintain books?
Maintain detailed records of:
Contracts showing valuation method chosen.
Segregation of material and service portion if opting for actual service portion.
Input tax credits availed.
Accounting entries clearly reflecting the valuation and tax paid.
Reconcile service tax paid with turnover and credit claimed.
Summary:
Aspect Details
Presumptive valuation 40%, 60%, 70% of contract value under Rule 2A
Actual service valuation If service portion can be determined separately
Switching allowed Yes, with proper accounting and credit adjustments
Reference Rule 2A, Circular 137/7/2011-ST
Background:
Earlier, composition schemes existed for work contract services.
Post amendment (especially after Rule 2A of Service Tax Valuation Rules, 2006), the tax is payable on a presumptive basis — 40%, 60%, or 70% of the contract value depending on the type of work (original or other than original).
This presumptive valuation is not a composition scheme, but a valuation method when you cannot bifurcate goods and services accurately.
Can an assessee switch between valuation methods mid-year?
Yes, the assessee can switch between paying service tax on the presumptive value (40%, 60%, 70%) or on the actual service portion if properly segregated.
When switching, Cenvat credit availability changes accordingly (if paying on actual service portion, credit is allowed on inputs/input services; on presumptive basis, credit is restricted).
Proper books of accounts must be maintained to support whichever method is chosen.
Official Reference:
Rule 2A of the Service Tax (Determination of Value) Rules, 2006 governs the valuation of work contract services.
Circulars such as Circular No. 137/7/2011-ST dated 7-3-2011 provide clarifications on valuation and credit.
For switching, no specific circular prohibits changing methods, but consistent accounting and record-keeping is necessary.
How to maintain books?
Maintain detailed records of:
Contracts showing valuation method chosen.
Segregation of material and service portion if opting for actual service portion.
Input tax credits availed.
Accounting entries clearly reflecting the valuation and tax paid.
Reconcile service tax paid with turnover and credit claimed.
Summary:
Aspect Details
Presumptive valuation 40%, 60%, 70% of contract value under Rule 2A
Actual service valuation If service portion can be determined separately
Switching allowed Yes, with proper accounting and credit adjustments
Reference Rule 2A, Circular 137/7/2011-ST
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