Tds on vat

Nitin,

I see the entry about this when do the audit of one company, in which TDS on VAT deducted by same amount who deduct TDS on Contractor @ 2%.

it is only applicable on Work contract in a construction Company. Tds is deducted on entire amount while VAT is calculated on 67% on entire amount.

Sunil, can you please explain 67% concept using an example.

Hi Sanjeevji,

TDS on VAT has nothing to do with the Income-tax Act. But in some State VAT Acts like in Kerala Value added tax, Tax is deducted on Payment on Works Contract.

VAT on Works contract is a tricky concept as work includes both Material & Labour. Sale of Materials attract VAT but Sale of Labour attracts Service Tax. In some Works Contracts it becomes difficult to seperate the two. Hence it has paved the way for Composition Schemes for Works Contract in both VAT act & Service Tax Act. However the contractor has the option to seperate the labour & Material portion. But if he finds the calculation tedious, he can opt for composition scheme. Pay 4% VAT & 4% Service Tax on the entire Contract price & THATS IT.

Coming back to the question of TDS on VAT, i have given the relevant extracts of the KVAT Act. Please read for reference. Provisions in other states should be on similar lines.

Meaning of Deduction of tax at source in Kerala VAT

10. Deduction of tax at source.-(1) Every awarder shall deduct from every payment, including advance payment, made by him to any works contractor liable to pay tax under section 6, in relation to any works contract awarded, the tax payable by the contractor in respect of such contract under that section, whether the transfer of goods involved in the execution of works contract is in the form of goods or not, and remit it to Government, in the prescribed manner, within five days from the date of such deduction. Every such awarder shall also file such return as may be prescribed.

(2) For the purposes of sub-section (1) the awarder shall obtain from the contractor a declaration in the prescribed form, showing his tax liability in relation to such works contract:

Provided that the awarder shall obtain from the contractor quarterly certificate issued by the assessing authority showing the tax liability or tax remittances, as the case may be, of the contractor in relation to the contract up to the end of the previous quarter.

Provided further that the awarder shall, before making final payment to the works contractor in respect of any contract, obtain a liability certificate from the assessing authority.

(3) If any awarder effects any payment without deduction of the tax as provided under sub-section (1) or after making such deductions, fails to remit the same to Government within the time limit specified under the said sub-section, the awarder and any person or persons responsible for such deduction on behalf of the awarder, including a Director, Manager, Secretary or other officer of a company, shall be jointly and severally liable for payment of such amounts to the Government forthwith as if it were a tax due from him.

Explanation.-For the purposes of this section:
(1) “company” means any body corporate and includes a firm or other association of individuals, or a Co-operative society; and
(2) “Director” in relation to a firm, means partner in the firm