Method of Calculating the Tax liability of VAT in Work Contract:-
1. Exemption Fee Method/Composition Method
2. VAT Method – 1 (Actual labour deduction)
3. VAT Method – 2 (Standard Labour Deduction)
Exemption Fee Method /Composition Method –
due to complexity of calculation of labour charges and other permissible deduction under vat law in case of VAT liability of work contractor, the State Government issueS Notification No. F-12(59). FD/Tax/2014-23 dated 14.07.2014 for taxation of work contractor. It is very simple process and dealer engaged in work contract can avail the benefit of said notification.
Rate of Tax/Exemption Fee (on % of the total value of the contract)
|No.||Category of Work||Rate/Fee|
|1||Work contract where the cost of goods involved in work contract does not exceed five percent of total contract amount||.10|
|2||Work contract relating to EPC Turnkey power projects awarded by Rajasthan Rajya Vidyut Utpadan Nigam Ltd.||1.00|
|3||Work contract relating to construction and repair of roads,runways,bridges, dams, drains excluding sewerage system, tunnels, canals, channels,barrages,railway tracks, causeways, subways, diversion, spill ways, boundary walls, buildings and water harvesting system||0.75|
|4||Work contract related to setting up of new enterprise or expansion of existing enterprise manufacturing fertilizer within the state with minimum investment of 2500 Cr||1.00|
|5||Any other kind of work contract not covered by item no. 1 to 4||2.00|
- Application of Exemption: – where the dealer opting for payment of exemption fee in lieu of tax is executing more than one work contract, he shall submit separate application for each work Contract.
A. Form – WT-1
B. Time period – 60 days
C. Enclosed – Self Attested copy of Work Order and G-Schedule
D. Other – if the work contract is 1 type above mentioned, then certificate from the awarder is also enclosed that value of material does not exceed 5 percent of contract amount.
2. Grant of Exemption Certificate – the assessing authority or the officer authorized by the commissioner in this respect, on being satisfied that the application is complete in all respect, shall issue Exemption Certificate in Form WT-2 within 20 days of submission of application in form – WT1
3. Revision of Value of Work Contract or Additional Work – where excess payment is made to such dealer by the awarder for any additional work or value of contract is enhanced, then exemption certificate should be revised after submission of an application in form WT -4 along with documentary evidence.
4. Condonation of Delay – if dealer fails to submit application within the time provided, then he can submit application with delay fee along with application in Form WT-3, the delay fee is as follows
A. up to one year from the date of award – Rupees one thousand
B. More than one year up to two year – Rupee five thousand
5. Manner of Deposit Exemption Fee –
A. Where the awarder is a department of any government, a corporation, a public undertaking, a co-operative society, a local body, a statutory body, an autonomous body, a trust, or a private or public limited company, or limited liability partnership, then amount as rate mentioned above shall be deduced by awarder from each bill of payment to be made in any manner to such dealer and submit that to government account. The dealer at the time of filling return availed the benefit of such TDS against VAT Liability.
B. If the awarder is not covered above, the dealer shall be required to make payment of exemption fee in equal monthly installments in a period not exceeding the period of contract.
6. Conditions for availing this notification :-
A. The dealer who opted for payment of exemption fee, shall purchase goods used in the execution of the work contract, from a registered dealer of the state and in case of use of any goods purchase other than the registered dealer, the dealer is liable to pay an amount equal to VAT of said goods.
B. The dealer shall not entitle to claim input tax credit in respect of the goods used in execution of work contract.
7. Major Feature of Exemption Fee Method –
A. EC or fee is payable at fixed rate, on total value of contract.
B. No deduction is availed for labour and other exp from contract value.
C. Only one annual return is required to file.
D. Records of material purchased and consumed is required to maintain. As there is provision in notification that dealer should purchase material from registered dealer only, in case of purchase from unregistered dealer, dealer is liable to pay amount equal to VAT. So at the time of Assessment, CTO can ask dealer to produce the bills of material in which VAT is charged as per VAT Law.
E. Option once exercised no exit route available.
VAT Method 1 and 2, compliance by awarder, status of sub contractor will discuss in next Article.