There are three methods of tax payments available for Works Contracts Tax in TNVAT. They are as follows :-
1) Goods Identification method (Section 5)
2) Percentage Deduction method – Rule 8(5)
3) Composition Scheme – Section 6
GOODS IDENTIFICATION METHOD
In this method, tax is on the deemed sale value of goods at rates specified in the Schedule to the Act. Deemed Sale value is arrived on the landed cost of the goods at the site and reasonable profit on the same. Conversion charges can also be added, if the goods are used in some other form than the one purchased. The output tax can be collected from the buyer (Contractee)
PERCENTAGE DEDUCTION METHOD
When the labour and other like charges are not available separately and the same is not ascertainable from the books of accounts and records maintained by the dealer, it has to be calculated at the following rates on contract price, vide rule 8(5) :-
Type of Contract % of Contract Price
Electrical contracts 15%
All structural contracts 15%
Sanitary contracts 25%
Watch and clock repair contracts 50%
Dyeing contracts 50%
All other contracts 30%
By deducting the above from the contract price, the deemed sale value of the goods involved is arrived at and tax is payable @ 14.5% when the goods involved are taxable at various rates , @ 5% only when all the goods involved are taxable @ 5%.
COMPOSITION SCHEME – Section 6
Under this scheme, tax is payable @ 2% in case of Civil Works contract receipts or @ 5% in case of non civil works contract receipts.
This option should be exercised in writing to pay tax under this method.
ITC cannot be claimed under this method.
The contractor shall not collect any tax on his works contract receipts.
No ITC to Contractee also.
Dealers opting to pay tax under composition scheme SHOULD NOT MAKE ANY INTERSTATE PURCHASES OR IMPORT FROM FOREIGN COUNTRIES.
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1 thought on “HOW TO DISCHARGE WORKS CONTRACT TAX IN TNVAT”
Excellent commentary with clarity. Great help for Junior CAs.
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