GST Impact on Works Contract, How Will GST Impact Works Contract?: Detailed Guide for Works Contract under GST Regime..Works contracts are composite contracts involving material and labour. The material portion involving the supply of goods is taxable to Value Added Tax (VAT), while the service portion is liable to service tax. If a new commodity comes into existence, in the process of executing a works contract, then, Central Excise duty may be levied.Under GST law, works contract could be taxed on gross value with ITC on goods and services being available. It would be considered as a service. It could be at 18%. Credit in respect of Steel, cement, electrical items would more than offset the present net tax in most States. More clarity is expected.
Impact of GST on Work Contractors
Lesser LitigationWorks contract is always an area for litigation on different matters such as valuation, classification etc. GST since subsuming multiple taxes in to it would probably reduce litigation in this area.
Dual Taxation Would be HistoryArticle 366 (29A) (b) enable to state government(s) to tax goods portion involved in the execution of works contract. Further, service portion of works contract is declared service under section 66E of Finance Act 1994. Under GST, in terms of Schedule II of draft model law works contract including transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; is a service
TDS ON WORKS CONTRACT TRANSACTION UNDER VAT
Rate Under GST for Work Contract
- a. If VAT paid on actuals with ITC ( say material cost + margin = 73%) where the cost of material is determinable. Then STR can be paid on 27% x 15% presently. The Excise duty of 12.5 on the material in this case maybe ( 7%) is also a cost of IDT. Entry tax + procurement under CST could be a n additional cost in some cases. Therefore presently the total taxes borne could be almost 22%.
- b. If VAT is paid on Govt figures then VAT maybe paid on 70% ( 7%) and ST on 40%(6%) + CED ( 7%) + cascading as above. Also around 24%.
- c. If VAT paid under composition- composition rate +++ Maybe 22%.
FAQ's on Work ContractWhether Works contracts and Catering services will be treated as supply of goods or supply of services? Why
- (a) Date of issue of invoice;
- (b) Due date of issue of invoice under Section 28;
- (c) Date when the payment entry in relation to supply of services is recorded in the books of accounts;
- (d) Date on which the payment is credited to supplier’s bank account.
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