work contract tax

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Querist : Anonymous

Querist : Anonymous (Querist)

09 June 2011 I WANT TO KNOW EVERY THING DELHI WORK CONTRACT RULES SUCH AS-RATES FOR WORK CONTRACT TAX,INVOICE FORMAT INCLUDING VAT AND SERVICE TAX AND ACCOUNTING IN CONTRACTOR AND CONTRACTEE BOOKS OF ACCOUNTS.

CA Suresh Jain

CA Suresh Jain (Expert)
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10 June 2011 what do you want?

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Querist : Anonymous

Querist : Anonymous (Querist)

11 June 2011 I WANT TO KNOW EVERY THING DELHI WORK CONTRACT RULES SUCH AS-RATES FOR WORK CONTRACT TAX,INVOICE FORMAT INCLUDING VAT AND SERVICE TAX AND ACCOUNTING IN CONTRACTOR AND CONTRACTEE BOOKS OF ACCOUNTS.

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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03 August 2025 Sure! Here’s a detailed overview of Work Contract Tax (WCT) rules in Delhi, including VAT, Service Tax, invoice format, and accounting treatment for both contractors and contractees:

1. Work Contract Tax (WCT) in Delhi
Authority: Delhi VAT Act governs WCT.

Applicability: WCT applies on all works contracts involving construction, repair, maintenance, erection, commissioning of immovable property.

Tax Rate:

4% WCT on the gross amount of contract value (inclusive of materials if supplied by the contractor).

If the contract value is exclusive of materials supplied by the client, then tax applies only on the labor/ service portion (usually 70% of contract value as per service tax rules).

Deduction at Source:

The person responsible for payment deducts 4% WCT from the payment made to the contractor and deposits it with the Delhi Government.

2. VAT on Work Contract
In Delhi, WCT is levied instead of VAT on work contracts.

Contractor doesn’t charge VAT separately on work contracts covered by WCT.

3. Service Tax on Work Contract
Work contract services are liable to service tax under the category “Works Contract Service” as per Service Tax rules.

Tax Rate:

Before 1 July 2012: 10.3% (including education cess)

After 1 July 2012: 12.36% (including secondary and higher education cess)

Valuation can be done on 70% (civil contracts) or 40% (original works) of gross amount where materials are supplied by the client.

4. Invoice Format for Work Contract
Invoice should contain:

Name, address, and VAT/TIN number of the contractor

Invoice number and date

Name and address of contractee

Description of work contract

Gross contract value

WCT deducted (4%)

Service tax charged separately (if applicable)

Net amount payable

5. Accounting Treatment
For Contractor:

Record the gross contract value as revenue.

Service tax charged (if applicable) is recorded as output tax liability.

WCT deducted by client is recorded as TDS receivable (asset).

Claim input credit of service tax on inputs/services related to contract.

For Contractee (Client):

Record payment to contractor as expenses.

Deduct WCT (4%) from payments made and deposit with the government.

Maintain records of WCT certificates received from contractor.

Deduct and pay service tax under reverse charge (if applicable for certain contracts).

6. Summary Table
Tax Type Authority Rate Deducted By Tax Base
Work Contract Tax Delhi VAT Act 4% Contractee Gross contract amount
Service Tax Central Govt (Service Tax Act) 12.36% (post 2012) Contractor/Client* Service portion (usually 70% or 40%)

*Reverse charge on service tax applicable on certain government and local authority contracts.

7. Additional Points
Registration: Contractors must register under Delhi VAT and Service Tax (now GST regime).

Filing: WCT returns filed as per Delhi VAT rules; service tax returns filed monthly/quarterly.

Transition to GST: Since July 2017, GST replaced service tax and VAT/WCT. Under GST, works contract is treated as a composite supply attracting GST.

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