Sandeep Ahuja & Co.

Established in the year 1986, we are a leading chartered accountancy firm based in Delhi & NCR rendering comprehensive professional services which include statutory audit, internal audit, direct tax, transfer pricing, GST, bank audit, propriety audit, cost accounting, internal financial controls and risk advisory.

Monday, August 18, 2014

WORKS CONTRACT TAX

 Effective from 1st April 2013.
·         Applicability on dealers ENGAGED EXCLUSIVELY in carrying out works contracts  in Delhi
  • Composition dealers under this notification SHALL NOT BE ELIGIBLE for the general composition scheme provided by Section 16(1) to 16(10) of the Act.
Different rates under different schemes for different type/nature of Works contract has been suggested under this Model.
ELIGIBILITY FOR SCHEMES:
SCHEME A:
A registered dealer opting to pay composition tax under this Scheme shall:
(i)                 not purchase/sell or procure/supply goods from/to any place outside Delhi at any time during the period for which he opts to avail this Scheme
* He may procure his own Plant & Machinery and Equipments from outside Delhi, MEANT EXCLUSIVELY FOR USE IN EXECUTION OF THE WORKS CONTRACT BY HIM.

SCHEME B:
A registered dealer opting to pay composition tax under this Scheme shall
(i)                 Be entitled to make purchases of goods required for the execution of the contract under this Scheme in the course of inter-State trade or commerce on the basis of his certificate of registration against declaration in Form-C.
OR
(ii)               By way of inward transfer of stocks from other States against Form-F
OR
(iii)             By way of imports from other countries solely for the purposes of utilizing the same in the execution of works contract in Delhi only. The dealer shall use the material/ goods imported or procured from outside Delhi strictly for use in execution of the works contract transactions.

General Conditions for both the schemes:-
The composition dealer opting for composition under this notification shall:
a)      NOT purchase or procure goods, other than those specified in the First Schedule appended to the Act, within Delhi, from a person who is not registered under the Act, except to the extent of 2% of his total purchase turnover during the year or Rs. 25 lakhs, whichever is lower;
b)      NOT be ELIGIBLE to CLAIM TAX CREDIT under section 9 and/ or section 15 of the Act;
c)      NOT compute his net tax under section 11 of the Act;
d)      NOT collect any amount by way of tax under the Act;
e)      NOT be entitled to issue ‘Tax Invoices’;
f)       continue to retain the originals of all tax invoices and all the retail invoices for all his purchases and copies of all retail invoices issued by him as required under section 48 of the Act;
g)      Maintain separate records of all the purchases made within Delhi, or in the course of inter-State trade or commerce and by way of transfer of stock or from outside India;
h)      issue only Retail Invoices, as per provisions of the Act and the Delhi Value Added Tax Rules, 2005 (hereinafter called ‘the Rules’);
i)        BE ELIGIBLE to CLAIM SET OFF OF TDS only if on the date of filing of return, he is in possession of original TDS Certificate issued to him by the person making the deductions; and
j)        NOT ENTITLED for refund before his assessment is made under section 32 of the Act.
FEW RELEVANT POINTS
  • A dealer, who opts to pay composition tax under the notification and are liable to tax at different rates under this notification, shall pay tax according to the rate applicable to each of such contracts.
·        The TAX PERIOD for the composition dealer shall be a QUARTER, unless otherwise prescribed by the Commissioner for a dealer or class of dealers. However, the tax due shall be paid by the composition dealer ON MONTHLY BASIS, WITHIN 21 DAYS OF THE END OF THE MONTH.
  • In case of Failure to comply, provisions of DVAT shall apply as if no composition scheme applicable and Input tax credit on Opening Stock shall be available.

INTIMATION TO CONTRACTEE & TDS (WCT)
Dealer who opts to pay Tax under Composition Scheme shall make an application to the contractee/ awarder, not being an individual or a Hindu Undivided Family, in which he authorizing it to deduct tax at source at the rate which may be applicable to the contracts for which composition is opted by the dealer. The contractor shall not be able to claim benefit of the TDS in his return unless the contractee/ awarder has deposited the amount in the appropriate Government Treasury. The Contractor would be able to claim the benefit of TDS on the basis of the TDS Certificate issued by the Contractor in a prescribed form in which the details of challan deposited is also mentioned.

FORM C BENEFIT NOT AVAILABLE ON SALE OF PLANT & MACHINERY
A composition dealer SHALL NOT make any SALE OF CAPITAL ASSET including Plant & Machinery and Equipments, scrap, surplus, waste or discarded material OUTSIDE DELHI AGAINST CENTRAL STATUTORY FORMS  & shall pay Tax at the rates specified in section 4of the Act, as if he has not opted for any scheme. 

NO IMPLICATIONS FOR GOODS SUPPLIED BY CONTRACTEE – SUBJECT TO CONDITIONS
The Composition dealer is not required to pay any tax on the VALUE OF GOODS SUPPLIED BY THE CONTRACTEE to the Contractor in the execution of Works Contract where the ownership of such goods remains with the Contractee. The amount representing the value of the goods supplied by the contractee to the contractor does not form part of the contract and is not deductible from the amount payable to the contractor by the contractee for the execution of the works contract.
NO TDS SHALL BE DEDUCTED BY THE CONTRACTEE ON THE VALUE OF GOODS SUPPLIED BY THE CONTRACTOR.

RATES APPLICABLE

S.No
Type of Works Contract
Rates under Scheme A
Rates under Scheme B
1.
All Residual Works Contract not covered under 2 & 3 below
3%
6%
2.
Construction WC Dealers
Construction, of a complex, building, civil structure or a part thereof, including a residential unit or a complex or building, for sale whether wholly or partly, to a buyer before construction is complete, where the value of land is included in the total consideration.
Note: Contracts where the entire consideration is received after issuance of completion certificate by the competent authority are excluded here
1%
3%
3.
Every registered dealer engaged in
(i) Printing and/or book-binding.
(ii) Textile processing such as dying, fabrication, tailoring, embroidery and other similar activities.
(iii) Electro plating, electro galvanizing, anodizing, powder coating and other similar activities.
(iv) Re-treading of old tyres
2%
3%
*Rate as % of Turnover
Turnover for above purpose shall include total consideration of contract including labour charges (service portion) etc & in case on construction dealers shall also include the value of Land.

Modalities of Scheme
·        The dealer can opt for this scheme by filing an application in Form WC 01 along with his registration application in Form DVAT 04.
  • The application is to be filed within 30 days from First day of FY of opting scheme or applicability of notification as applicable.
  • Existing Dealers opting for such scheme shall pay tax on opening stock as per section 4 of DVAT, 2004. The WC-01 shall be accompanied with Form SS-01 detailing the stock, tax paid.
  • If due to some reason the dealer fails to comply, the input tax credit of opening stock shall be provided to the dealers.
  • Scheme shall be eligible for financial year except where dealer defaults in furnishing return within due date for two consecutive tax periods. In such a case, the scheme within deemed redundant and the dealer shall be required to file WC-02 within 7 days of such default.
  • Once a dealer has opted to pay tax under this scheme, he shall, not be eligible to withdraw his option before the end of the financial year.
Registered Sub-contractor – Benefits/Exemption

Where the composition dealer has made any payment to a registered sub-contractor, who also opts for composition, for the execution of works contract, whether wholly or partly, the composition dealer, shall issue a certificate to such sub-contractor, in Form CC 01. Such sub-contractor shall be eligible to deduct from his turnover liable to be taxed under this scheme, the amount mentioned in such certificate by enclosing it with his return. Such amount shall not constitute part of the turnover in Form DVAT 17 of such sub-contractor. The contractor shall not deduct TDS from payments made to such sub-contractors in respect of the turnover covered by the certificate.

Contributed by Tanya Gagneja

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