Contractee: Every person, not being an individual or a Hindu undivided
family, who is responsible for making payment to any contractor for
discharge of any liability on account of valuable consideration payable
for the transfer of property in goods (whether as goods or in some other
form) in pursuance of a works contract.
Contractor: Every contractor responsible for making any payment or
discharge of any liability to any sub-contractor, in pursuance of a
contract with the sub-contractor for the transfer of property in goods
(whether as goods or in some other form) involved in the execution,
whether wholly or in part, of the works contract.
When to Deduct TDS
Contractee: At the time of credit of such sum to the account of the
contractor or at the time of payment thereof in cash or by any other
mode, whichever is earlier, on account of valuable consideration payable
for the transfer of property in goods (whether as goods or in some
other form) in pursuance of a works contract.
Contractor: At the time of such payment or discharge, in cash or by
cheque or draft or any other mode, to the sub contractor for transfer of
property in goods.
Rate of TDS
Tax shall be deducted at the rate of 2% on the sum paid/payable towards transfer of property in goods.
Basic Exemption
Contracts (including Sub Contracts) for a value upto Rs 20,000/- shall be held exempt.
Few Relevant Aspects:
1) Deduction of TDS under Delhi VAT Act is in addition to the
obligation of the contractee or the contractor, as the case may be, to
deduct tax u/s 194C of the Income Tax Act
2) TDS is not deductible by contractee on advance payments made to a contractor pursuant to the contract.
3) TDS is not deductible on inter-state sale, sale in course of import or labour and service
4) TDS certificate is to be issued in Form DVAT 43 within 15 days from
end of the month in which tax has been deducted in three copies. The
same shall be preserved for a period of minimum 7 years.
5) Every deductor shall apply for Tax Deduction Account Number (TAN)
within seven days from tax deduction liability in form DVAT – 44.
Computation of Taxable Turnover and Tax
Its a very Broad Aspect but we shall take up the cases with few
illustrations to discuss those cases which are general to some soughts.
Case 1:
Total Contract Value – `10,00,000/-
VAT – Additional as Applicable
Labour & Services – Not Ascertainable – Specified Percentage – 30%
Then, Taxable Turnover shall be – 10,00,000*70% = `7,00,000
And VAT Shall be 12.5% - 87,500/-
Case 2:
Total Contract Value – `10,00,000/-
VAT – Inclusive in Contract
Labour & Services – Not Ascertainable – Specified Percentage – 30%
Computation of Taxable Turnover shall be a Complex effort Now, Assume total contract value to be 100.
Lets Assume material to be x, thus VAT would be 12.5% of x and Labour
would be 30% of (100 – 12.5x/100). This Shall Create a complex Linear
Equation and need to be solved. On Solving you get the VAT of Rs 80,460/- and Material Value of Rs 6,43,678/-
Conclusion
In the End, I would end by Saying that as we are going towards several
changes to simplication it is the need our the hour that the service tax
and vat aspects of such a works shall be brought fully in congruence
with each other such that assessee and professionals can ensure
implementation of standard practices across the board of Works Contract
Industry.
CA Ankit Gulgulia
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