What is the taxable rate for WCT in Tamilnadu

845 votes

Sec 2(43) defines as “Works Contract” there are two different methods and the option is left to the choice of the dealer. This method is also known as Method of Composition or Composite method of tax payment. In this case the dealer is liable to pay tax on the total value of the works contract at the applicable rates. The applicable rates are 2% for civil works and civil maintenance works & 5% (4% till the amendment on 13/2/2012) for all other works. And the highlighting points under this method are (a). The dealer has to present his option of payment of tax under this method with the assessing authority before 20th of May of the financial year or along with the first month return after commencement of the works contract execution, as the case may be, (b) The dealer is not required to maintain books of accounts under this act., and it does not mean that he/ she need not maintain books of accounts under the other law(s) in the land, and (c) The dealer cannot take Input Tax Credit on the purchases or on the inputs, and more importantly (d) the tax has to be paid out of his margin earned or to be precise he has no rights to collect the tax portion from his customer(s). Second Method: It is opposite to the first method and it is known as Non-composition in general and the properties are:

(a) the dealer is not liable to pay tax on the total value of the works contract/ total turnover at the applicable rates but on the taxable turnover only and again the percentage of tax payable on the said turnover is based on the form of the property and its applicable rate as listed in the different parts of the First Schedule of the Act.

(b) Unlike the other method the dealer need not place his/her option of payment of tax liability under Non-composition. Once the dealer fails to present the option, it is automatic that he is liable to pay tax under Non-composition method.

(c) The dealer is required to maintain books of accounts under this act and to produce the evidence(s) with the appropriative authorities, as and when required by them.

(d) The dealer is entitled for Input Tax Credit on the purchases or on the inputs, subject to certain restrictions, as prevalent from time to time.

(e) The dealer cannot take Input tax credit on the purchases under CST act.
More precise advice could be given on verification of your records.

Advocate P.N Rajan LawRato

647 votes

Dear Sir,

The works contract under TNVAt Act is been governed by two different methods and the option is left to the choice of the dealer.

First Method:
This method is also known as Method of Composition or Composite method of tax payment. In this case the dealer is liable to pay tax on the total value of the works contract at the applicable rates. The applicable rates are 2% for civil works and civil maintenance works & 5% (4% till the amendment on 13/2/2012) for all other works. And the highlighting points under this method are (a). The dealer has to present his option of payment of tax under this method with the assessing authority before 20th of May of the financial year or along with the first month return after commencement of the works contract execution, as the case may be,
(b) The dealer is not required to maintain books of accounts under this act., and it does not mean that he/ she need not maintain books of accounts under the other law(s) in the land, and
(c) The dealer cannot take Input Tax Credit on the purchases or on the inputs, and more importantly
(d) the tax has to be paid out of his margin earned or to be precise he has no rights to collect the tax portion from his customer(s). The reader may mark these facts/ points are covered under sec. 6 of the TNVAT Act.

Second Method:
It is opposite to the first method and it is known as Non-composition in general and the properties are:

(a) The dealer is not liable to pay tax on the total value of the works contract/ total turnover at the applicable rates but on the taxable turnover only and again the percentage of tax payable on the said turnover is based on the form of the property and its applicable rate as listed in the different parts of the First Schedule of the Act.

(b) Unlike the other method the dealer need not place his/her option of payment of tax liability under Non-composition. Once the dealer fails to present the option, it is automatic that he is liable to pay tax under Non-composition method.

(c) The dealer is required to maintain books of accounts under this act and to produce the evidence(s) with the appropriative authorities, as and when required by them.

(d) The dealer is entitled for Input Tax Credit on the purchases or on the inputs.

(e) The dealer cannot take Input tax credit on the purchases under CST act.

Common for both the cases/ Methods:

(a) The option opted as above is final and binding and the dealer has no option to switch over to other method with in the financial year. However switching from one method to another is possible from the next financial year, if the project is continued to be in execution.

Difference between (i) Value of the Works Contract under the first method and (ii) Taxable Turnover under the second Method:

The total consideration received or receivable in future in respect of the works contract agreement, accounted under the regular accounting practice of the dealer whether on Mercantile or an accrual basis. To say the value received plus receivable plus escalation if any due in future is called Value of Works Contract.

The Taxable Turnover means, the value of the works contract adjusted by the component of exempted goods and services included or inbuilt in execution of the works contract. To cover an example(s) is/are: labour charges paid on execution of the civil works, equipments or apparatus covered under Part-B of Fourth Schedule (Sec. 15). It is to be noted that the value of VAT charged in the Invoice is not part of the value of the works contract.

Assessment of Tax Liability on Taxable Turnover:

The dealer is liable to pay tax at the rates specified in the First Schedule on the taxable turnover. If the inputs/ purchases for execution of the projects are covered by more than one tariff category/ group of goods and services fall under more than one rate of tax, then the taxable turnover is divided in to more than one group in the same ratio of the inputs category/ group. Now the splitted taxable turnover be charges on the respective tax rates as per the first schedule to arrive the tax payable.

in your case, please clarify whether you had adopted for compounding option or payment of tax at a commodity rate of tax. then the relevant method will apply for you. Furthermore, the DCTO will send notice with the proposal. now you are saying Form O notice issued. From O will be issued along with assessment order. then you have no other go except approaching appellate authority or High Court.

Advocate N Sudalai Muthu LawRato

675 votes

It looks like your query is related to Sales Tax, which is a state legislation. I only handle Income Tax related matters. If you have any Income-Tax related question, kindly get back to me with me with a specific query.

Advocate Sendamarai Kannan LawRato