CA Suketu Sheth
Where the entire corporate world in the Indian territory is behind the ‘Draft GST Law’ made available in the public domain,the Maharashtra sales tax department following its traits of far sighted vision, continued by introducing VAT Automation System. (i.e. a highly technological, advanced and integrated system laid on the SAP platform) starting from online registration/amendment under the various acts, filing of new return and other support processes to ensure compliance of law.The concept of ‘ease of doing business’ being the core element behind the introduction of VAT Automtation system.
Though minimal, but one of the important aspect of the said process is the procedure in the MVAT TDS (the same was issued via Notification No. VAT/ADM-2016/1B/Adm-8 dated 24th February 2016) by modifying VAT TDS return the ‘Form 424’.To facilitate the dealers, a SAP based portal has also been introduced by the department for online registration of various statutes (i.e. MVAT Act, CST Act, Luxury Tax Act, Entry Tax Act, SCPT Act, PTRC Act and PTEC Act) applicable from 25th May 2016 in the MVAT portal.
Thus, through this article, we have highlighted the overview of MVAT TDS, its benefits to the contractors/ sub-contractors and to the department in a broader view.
MVAT TDS- an overview
Tax deducted at Source (TDS) is governed under Section 31 of MVAT Act,2002 read with Rule 40 of MVAT Rules, 2005, is a form of deduction which shall be made by the Employer (dealer) at the time of making payment to the Contractor (supplier) for execution of works contract awarded within the state of Maharashtra, at the rates prescribed.
The important aspects of this are:
Employer : The Commissioner of sales tax department, Maharashtra via notification no Notification No. JC(HQ)1/VAT/2005/97 Dated 29th August, 2005 has prescribed the class of employer who are liable to deduct tax at source while making payment to the contractor. There are 10 classes of employers prescribed who shall be liable to deduct VAT TDS.
Contractor: A dealer who undertakes the execution of works contract awarded from the employer
Sub-contractor: A contractor who undertakes the execution of works contract awarded by the contractor.
Rate of TDS: TDS shall be deducted @2% of the amount payable in case contractor is a registered dealer, otherwise it is 5% for unregistered dealer.
Prescribed Monetary Limit:
VAT TDS shall be deducted if the contract value (excluding taxes, if separately charged by the contractor)is INR 5 lacs or more in a financial year (i.e. the limit prescribed is for each contractor during a year). However, in case the employer is a ‘’Co-op Housing Society registered under the Maharashtra Co-op Socieities Act, 1960’’ then the limit shall be Rs 10 lacs or more in the previous year or in the current year.
VAT TDS in New Automation Process
The Commissioner of sales tax department presented the first glance of the VAT Automation Process via Trade Circular 7T dated 25th February 2016. Further, the Notification No. VAT. 1516/CR 64/Taxation-1.dated 29th April 2016, has also provided certain amendments in various provisions in response to the same.
- The Rule 40(1)(d) of the MVAT Rules, 2005 provides that the employer who has deducted the tax and paid such amount into the Government treasury shall be required to file the monthly MVAT TDS Return in ‘Form 424’ from 1stApril 2016 onwards, which was otherwise to be filed annually on or before 30th June of the succeeding year.
- The principal contractor will be able to transfer the MVAT TDS credit to their sub-contractor (in respect of the concerned contract) by filing return in ‘Form 424A’ under Rule 40(1)(e) of the MVAT Rules, 2005from 1stApril 2016 onwards.
The first look at the above points seems only to be additional compliance of filing monthly return which was otherwise annually and also the additional return in ‘Form 424A’as an when the principal contractor wishes to transfer the credit of VAT TDS to sub-contractor. But, the benefits which lie beneath these two provisions which though not visible have a far going impact, not only on the employer, but also seems to extend the benefit to the contractor, sub-contractor & the department of course, which are highlighted below:
Benefits to the Contractor/ Sub-contractor
- The VAT TDS credit available to the contractor will be displayed in the ITC register, thus contractor can be assured that the employer has paid the VAT TDS in the government treasury and have filed their monthly return in the MVAT portal.
- The contractor will be able to utilize the VAT TDS credit once it is available in their ITC register, ensuring early utilization of TDS credit effectively.
- The principal contractor may claim credit of VAT TDS payment as payment of tax by him or if he has awarded sub-contract, then he may transfer VAT TDS credit to such sub-contractor. It is welcome move for the sub-contractor as they shall be able to utilize such VAT TDS credit transferred from principal contractor for the concerned contract, as under the earlier provision, the same was not available.
- There is no time line prescribed for filing ‘Form 424A’ for transfer of credit to the sub-contractor. Hence the same can be filed as & when the contractor wishes to transfer TDS credit to its sub-contractor.Unless the principal contractor files his return in ‘Form 424A’, the TDS credit shall not be transferred to the sub-contractor.
- It is pertinent to note that the transfer of VAT TDS credit by the principal contractor to the sub-contractor shall be available only where an employer has deducted and paid the TDS amount on or after 1st April 2016.
- Further, the said VAT TDS credit transferred from principal contractor can be utilized by the sub-contractor against his output tax liability or may be claimed as refund in case of any excess credit.
- There were instances when the TDS credit was availed by the contractor on basis of TDS certificate in ‘Form 402’ issued by the employer. However, in case of default in payment of VAT TDS into the government treasury and non-filing of return by the employer, which was found after a long period of time at the time of assessment audit and the same was resulting into the liability of contractor along with interest & penalty. So now because of the amended provision and facility to view credit ledger electronically from 1st April 2016 onwards, contractors will be able to see whether VAT TDS deducted and paid by the employer is available as credit to Contractor or not.
The rules still prescribes that the VAT TDS Certificate shall be issued by the employer in ‘Form 402’ to the contractor; the credit available can be verified from the ITC register of the contractor(on the basis of the VAT TDS return filed by the employer). This report will be on the similar lines of 26AS mechanism under the Income tax Act, 1961.
Benefits to the Department
- The prinicipal contractor shall be required to disclose the works contract transactions executed in the sale annexure by a separate code against TIN (as per new VAT return form prescribed by the commissioner of sales tax). This will ensure to cross check whether employer has deducted the VAT TDS on the said contract or not.
- Whereby the reporting of tax deducted and transfer, if any will be displayed in their monthly/quarterly ITC register, the department intervention will be minimal.
- The Maharashtra Act No XV of 2016 by introducing sub-section (8) to section 31 of the MVAT Act, 2002 which states that every employer liable to deduct tax at source shall be required to obtain the Sales Tax Deduction Account Number (STDAN). However, no requirement to obtain such STDAN if the employer is already registered under the MVAT Act, 2002.This will help to keep a check on the tax evasion by the unregistered dealers.Further, Amendments to relevant rules, forms shall be notified and published on the department’s website after the newly inserted sub-section (8) to section 31 is brought into force by a notification in the official Gazette.
- The unregistered employers who deduct TDS were required to make payment of TDS via modes other than electronically and file annual VAT TDS return under the existing process. The allocation of STDAN will be a medium to keep all the employers in the tax bracket and hence ensure easier tracebility.
Thus, it can be said that the only point of concern in the monthly filing of VAT TDS return is if there is need to deduct tax and to pay the taxes in the Government treasury otherwise, the whole new automation has brought advantages accumulated to the employer, contractor/ sub-contractor and sales tax department. It is definitely an example as to how a small step could have a synergy effect. This shall definitely be a welcome move for all the dealers involved in this process. Thus, in a nutshell, the cost of VAT TDS return filing process in new automation will surpass & exceed the benefits which seems to be beyond imagination with naked eyes at this early stage.