Architects, Builders, developer and other providers of Civil and Allied works are assessed to both VAT and Service Tax
With respect to VAT, You have two options to do the Invoicing:
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 theworks contract at the applicable rates. The applicable rates are 2% for civil works andcivil maintenance works & 4% for all other works.
And the highlighting points under this method are
- The dealer has to present his option of payment of tax under this methodwith 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.
- The option opted as above is final and binding and the dealer has no option to switchover to other method.
- The dealer is not required to maintain books of accounts underthis act., and it does not mean that he/ she need not maintain books of accounts under theother law(s) in the land, and
- The dealer cannot take Input Tax Credit on the purchases or on the inputs, and more importantly
- The tax has to be paid out of the fund collected from the customer or 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), where the billing is made under composition.
Second Method: It is opposite to the first method and it is known as Non-composition in general.
In this case,
- The dealer is not liable to pay tax on the total value of the works contract 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.
- 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.
- 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.
- The dealer can take Input Tax Credit on the purchases or on the inputs.
I have illustrated the options available below:
Contract Value = Rs 100 lakhs plus applicable VAT.
Labour expenses in construction = Rs 32.00 lakhs,
Design charges = Rs.1.50 lakhs,
Purchase of Pumps from the dealer situated in other state = 10.00 lakhs,
Purchase of Pumps & motors from the dealer within the state = Rs 8.50 lakhs,
Purchase of cements from the dealer situated within the state = Rs .8.50 lakhs,
Purchase of bricks, blue metals etc from the dealer situated within the state = Rs.8.50 lakhs
Purchase of Electrical goods from a dealer situated outside the state = Rs.7.00 lakhs
Purchase of Electrical goods from a dealer situated within the state = Rs.15.00 lakhs
(1) First Method: If the dealer wishes to pay tax on composition method : ( No input adjustment )
|Contract Value||Rs. 100 Lakhs|
|VAT Payable @ 4%||Rs. 4 Lakhs|
(2) Second Method: If the dealer wishes to pay tax on Non-composition: ( which we currently use )
|Contract Value||Rs. 100 Lakhs|
|Less:Labour and Design charges (actual)||Rs. 33.50 Lakhs|
|Taxable Turnover||Rs. 66.50 Lakhs|
|VAT @ 12.5% on Rs. 66.60 Lakhs||Rs. 8.32 Lakhs|
|Less: Input tax adjustment ( on the below purch )||Rs. 6.12 Lakhs|
|Tax due||Rs. 2.20 Lakhs|
Input Turnover calculation:
Purchase of Pumps Rs.10.00 lakhs (Basic of Rs.9.61+ CST of Rs.0.39)
Purchase of Pumps & motors Rs.8.50 lakhs (Basic of Rs.8.17 + VAT Rs.0.33)
Purchase of bricks, blue metals etc Rs.8.50 lakhs (Basic of Rs.8.17 + VAT Rs.0.33)
Purchase of Electrical goods Rs.7.00 lakhs(Basic of Rs.6.73 + CST Rs.0.27)
Purchase of Electrical goods Rs.15.00 lakhs(Basic of Rs.14.42 + VAT Rs.0.58)