CA Amit Mundhra

Following are the summary of rules and procedure to be followed by a awarder of works contract in Rajasthan State.

What is a Works Contract

As per Section 2(44) of the RVAT Act 2003, works contract means

“contract for carrying out any work which includes assembling, construction, building, altering, manufacturing, processing, fabricating, erection, installation, fitting out, improvement, repair or commissioning or any movable or immovable property”

As per section 2(ja) of Central Sales Tax Act, 1956 Works contract means

“contract for carrying out any work which includes assembling, construction, building, altering, manufacturing, processing, fabricating, erection, installation, fitting out, improvement, repair or commissioning or any movable or immovable property”

Thus both in RVAT Act and CST Act same definitions are used for defining works contract.

Clause 29-A (b) of Article 366 of the Constitution

The genesis of the works contract tax can be derived from Clause 29-A(b) of Article 366 of the constitution of India, which includes execution of works contract in the definition of Sale.

Article 366 of the constitution of India defines that

29A(a) : …………

29A (b) : a tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract.

Rules Applicable for Awarder of Works contract in Rajasthan VAT Act

Rule 40 of Rajasthan VAT Rules governs the Works Contract Tax liability of the awarder which can be summarized as below.

1. Submit Information to VAT Department

Awarder Shall submit information to his jurisdictional Asstt Comm or ACTO upon entering into a works contract exceeding Rs. 5 Lacs.

Time limit for submitting of this information is within 1 month from the date of contract.

Form VAT-40 is the form prescribed for submission of this information.

2.       Deduct Tax at Source [WCT] from Contractor

If awarder is Government Department, 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, then

the awarder shall at the time of credit of any sum to the account of the contractor or at the time of making payment of the same, deduct an amount as notified by the State Government in lieu of tax.

The awarder shall issue certificate of deduction of tax at source in form VAT-41.

3. Rate of TDS notified by State Government

The state government vide notification no. F.12(63)/Tax/2005-81 dated 11-08-2006 has notified a rate of 3% to be deducted from contractor in case of works contract. However,

If contractor submits the exemption certificate under notification no. F.12(63)/FD/Tax/2005-80 dated 11-08-2006, then the rate of TDS will be equal to the rate of exemption fees mentioned in said certificate.

4. Deposit of TDS with VAT Department.

The amount of TDS so deducted by the awarder should be deposited by him in VAT Challan form VAT-37 within 15 days of the end of the month.

A monthly statement in Form VAT-42 mentioning the details of tax deducted and deposits along with the duplicate copies of issued Form VAT-41 is to be furnished to the relevant assessing authority within one month from the date of such deposits.

5.      Requisition of Form VAT-41 from the Department

Blank form VAT-41 shall be obtained by the awarder from the jurisdictional commercial taxes officer of the area in which the office of the awarder is situated on payment of Rs. 50/- per book containing 25 forms.

6.      Penalty for Non Deduction of TDS

Where the awarder fails to deduct the tax, or after having deducted does not deposit the same with the government, then penalty (i) for each violation is upto Rs. 1000/- in case of non deduction and (ii) penalty @ 2% per month on amount deducted but not deposited. (Section 63)

Where the awarder fails to submit monthly statements of tax deducted the penalty not exceeding Rs. 2000/- for each violation and for continuous violation Rs. 25/- per day is payable.

Author is a member of the ICAI and he can be reached at amit.mundhra@gmail.com

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2 responses to “Works Contract Tax under Rajasthan VAT – Rules Applicable for Awarder of a Works Contract”

  1. Ashwini Sharma says:

    Whether TDS under RVAT deductible on the Bill Amount or on the Released amount for the Bill.

  2. Ashwini Sharma says:

    Contract Awarded by Railways to a Joint Venture, who obtained EC from Department and in his turn given the work to subcontractor and again subcontractor awarded the work to other subcontractors, what is the liabilities for Main contractor for deduction of TDS from subcontractor and by subcontractor to subcontractor when full EC fees payable by Main Contractor.

  3. Priyanka says:

    Is there any limit of Bill up to which w.c.t is not deductible as in case of t.d.s up to Rsmm 30,000 for single payment and Rsmm 75000 for a year .

  4. Priyanka says:

    Is there any limit of Bill up to which w.c.t is not deductible as in case of t.d.s up to Rsmm 30,000 for single payment and Rsmm 75000 for a year

  5. B.M.Suneja says:

    I have taken any service (which comes under WCT & as per PO terms is tax extra (as actual))If party has charge the WCT Amount on Invoice than who will be responsible to deposit the WCT and what document required from Contractor(party) at the time of payment to party

  6. rk goyal says:

    Sir,

    Under WCT order if client deducts 3% tax is there any further liability of contractor ( is it similar to Haryana) under composition scheme.

    Can we get C form for importing material from outside Rajastan .

    Is it possible to be NON RESIDENT DEALER ( can we register in Rajastan with office adresss at DELHI and without any Permanent office in RAJASTAN).

    with regards

    rk goyal

  7. vivek srivastava says:

    We are a contractor company based in Gurgaon, Harayana. Are registered in Rajasthan for WCT. What would be the TAX liability the client is going to deduct from our bills as the price is including the taxes including WCT and Service Tax both.

  8. DS CHHIMPA says:

    DEAR AMIT JI
    I WANT TO KNOW NOTIFICATION NO. IN WHICH SHOW TAX RATE 1% OF NALI NIRMAN.
    PLS SIR SOLV MI QUE EARLY
    THANKS

  9. VINOD BHANDARI says:

    Recently one of the HCs has given a verdict that a colonizer or Builder will come under the purview of VAT and accordingly houses constructed and sold by him before the completion of the house, will be treated as a works contract.

    The opinion seems to be wrong as buyer of the house only starts paying in installments but he never awards a contract to build a house of his specification.
    He has no role whatsoever in desigining of supplying of materials etc. and therefore such agreements cannot come under the purview of WORKS CONTRACTS.

    YOUR OPINION ?

  10. saroj says:

    what is the penalty if information regarding submission of vat 40 is not given within the month

  11. Mukesh Khandelwal says:

    Dear Amit Sir,

  12. GP Agrwal says:

    Sh. Amit ji

    We have supplied lignte to Rajasthanb Viudut Utpadan Nigam Govt, Co. and they have issued VAT 41A cetificates to us and we have submitte to Salex Deppt. but on our assessement of 2011-12 Sales Tax Deppt has imposed interest on delay depost of VAT by Rajastahn Utpadan Nigam Lte Please clerify whether we can be imposed interest due delay deposit of VAT by them.

  13. gajendra says:

    contractor are manufacturer

  14. gajendra says:

    Dear Amit,
    Pl/ Clarify contractor purchases against ‘c’ form machinery

  15. Ashish Kumar says:

    HI Amit,

    Pls clarify, Still to receive the WCT TDS certificate form the Awarder of the contract from the period 2007–08, suppose if we receive the TDS Certificate in the year 2012-13 for the period 2007-08, can we utilize TDS certificate of 2007-08 against the payment of Tax liability of future period.

    regards

  16. CA Amit Mundhra says:

    Hi Ummed,

    If the final payment under a contract exceeds the value as stated in the EC, then you need to get the EC amended by submitting an application before the tax authorities. Failing this, they may consider the excess work done under non EC category and levy tax on it accordingly.

    CA Amit Mundhra

  17. ummed says:

    Dear amit

    I get contract for Rs. 5.0Lac through govt., i obatained EC from ACTO, but the work executed than amount passed for Rs 5.5 Lac. I have EC for 5.0 LAc, so how shown these 0.50 lac. Dept is already deduct as per norms @3% of bill amount. These problem facing on time of vat return.

    Reagrds

    Ummed

  18. SHAMBHU WADHWA says:

    I am a electrical contractor registered under works contract, the contract awardee is not registered and hence is likely not to deduct WCT while releasing payment.

    In other states under works contract we raise invoices i.e supply and installation of which 80-85% value is considered as material cost on which we charge and pay we pay the state vat tax after deducting the input tax , what are the rules in rajasthan. How do we raise an invoice as per rules, as per some
    segregate the supply and installation part and charge vat on supply part i.e 5% and 14% respecively as per item, however in some case an item executed isa combination of many items which is difficult to segregate. Request yur valued input on the same.

  19. gourav says:

    please tell me any official source of its for brief knowledge

  20. R.P. Agrawal says:

    Hi Amit..
    is Notofication no F.12(63)/FD/Tax/2005-80 dated 11-08-2006 still applicable?

  21. R.P. Agrawal says:

    Thanks Amit for summarising WCT provisions for Rajasthan. i have one query regarding payment of WCT. Is there any provision or commissioner has power to authorise awardee to pay the WCT on payment received from a company awarder? i have came to know that many contractors and contractees are following this practise for discharging the WCT liability.

  22. Gupta Ravi says:

    Dear Amit,
    Pl/ Clarify in case of Inter state Transaction for JOB WORK For Example Ours is a U.P.Base industry, We bring damaged material from Various states in to U.P. By using our road permit too, and return the same after repair. In course of repair some spares are also used, on which, we are paying Central E.D. and C.S.T.on spares, (Deemed Sales)as our rates are inclusive of all duties and Taxes. In the Job order rates are defined for various item, for the purpose of reaching calculating value of spares.still W C T is deducted from payments made to Us . Pl. Advise. More over under article 286, any state is not empowered to impose any kind of Tax.  Pl. Suggest – Gupta Ravi -9871 192021

  23. PRADEEP JAIN says:

    RATE OF INTT. ON DELAY LATE PAYMENT OF VAT

  24. Nitin Jain says:

    Hi Amit, Congratulations on such a useful & precise article. If you are working on this subject, I suggest that you cover each and every aspect of WCT (may be in serier of articles) so that it would became a ready reckoner for the readers and covers all the queries in their mind…….

    ….Nitin Jain

  25. Amit Mundhra says:

    Hi Jay,

    Your point is valid that I have covered only small topic relating to TDS liability on works contract. 
    I am aware of that this discussion is not complete without discussion of computation of tax liability on the contractor. But that is in itself quite a large subject which I have preferred to discuss in a separate article which is under process. In my view as the payment of Tax is an important subject, the recovery mechanism of the government is also an important subject.

  26. jay says:

    The article deals only on a minscule topic – TDS. It does give any information on the vat liabilty for a works contract, how the taxable value is arrived at, what are methods, the permissble deductions, payment of vat for works contracts, the rate, date and the provisions relating to subcontractor portion, which is actually more important & complex. Instead recovery, remittance of TDS & issue of TDS certificate is delat with. the artcle is neither comprehensive nor of much use., unles it covers all proviisons relating to works contract.
    definetly a better quality is expected out of chartered accountant

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