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Odisha VAT on builders and work contractors

Goods and Services Tax - GST - By: - CA.Tarun Agarwalla - Dated:- 8-7-2016 Last Replied Date:- 21-7-2016 - Odisha Vat Provisions- A study for construction and real estate sector. Introduction The issue of taxability of works contracts under VAT and Service Tax is something which has confronted assessee leading to frequent referrals to Courts over the years. While the issue of taxability under Sales Tax has led to referrals over the last 50 years or so, the issue with regard to service tax is a m .....

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works contracts. Builders and Developers undergo untold hardship and misery while computing the gross and taxable turnovers. Each State has prescribed its own law, rules and methodology for determining the gross and taxable turnovers./ in this article we will discuss the provisions of Odisha VAT act applicable to works contract including real estate sector. Statutory provisions and back ground Before the amendment of the constitution by its (Forty-Sixth Amendment) by a series of subsequent decis .....

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parties to the contract to the other party thereto for a price. In the 46th amendment of the constitution a new clause 29A have been inserted In article 366:- (29A) tax on the sale or purchase of goods includes- (a) ……. (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; State Sales Tax laws were suitably amended their respective state sales tax laws, then to incorporate the provisions to tax works .....

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o pay tax when it reaches the prescribed limit of taxable turnover. Further Clause 4 of section 10 of Odisha VAT Act any person executing any works contract in a financial year for a Taxable Total Turnover of ₹ 50,000 or more, will be liable to be registered and to pay to the commercial tax department tax on such works contract as VAT. VAT on real estate sector The applicability of VAT on real estate sector, builder where composite contract have entered and value of land also included, hav .....

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dominant nature test would not be applicable and that the sale element of those contracts could be separated and subjected to sales tax or VAT. Point of taxation Indirect tax law provides the point of levy or the point of occurrence of liability to collect or pay to the concerned taxing authorities. Under Odisha VAT act clause 4 of section 11 express the sale of goods shall, for the purposes of this Act, be deemed to have taken place, in the case of works contract, when the goods are incorporat .....

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material as well as labour or like charges are individually ascertainable, verifiable Under section 11(2)(c) read with Rule 6(e) of the Odisha VAT Act and Odisha VAT Rules certain deductions are being specifically provided to arrive the sale value from the total value of the Contract. The deductions are as follows:- Labor charges for execution of work. Amount paid to a sub-contractor for labour and service. Charges for planning, designing and architect's fees. Charges for obtaining on hire o .....

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to supply of labour and services. Amounts paid to a sub-contractor as consideration for the execution of works contract whether wholly or partly, in a case where the contractor proves to the satisfaction of the assessing authority that tax has been paid by the sub-contractor on the turnover of the goods involved in the course of execution of such works contract.[ this last clause(i) inserted since 01.10.2015] When the value of material as well as labour or like charges cannot be ascertainable, .....

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in the Appendix to the Odisha Vat Rule. The said slab of applicable rate for deduction as applicable is given in the following table: Sl No Particulars Labour and service charges component as % 1 Fabrication and installation/erection of- (a) Plant and machinery. (b) Structural including trusses and purlines. (c) Cranes and hoists. (d) Elevators, Lifts and escalators (e) Shutters and collapsible gates. 15% 2 Supplying and fixing/installation of - (a) door, windows, grills including its frames &am .....

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y dam (i) Concrete dam (j) Spillway (k) Canal lining (l) Other canal structure 40% (m) Wooden/bamboo fair weather bridges 30% 25% 30% 20% 15% 15% 50% 35% 45% 35% 35% 40% 20% 4 Sanitary fitting and plumbing s 15% 5 Painting and polishing 20% 6 Supplying and laying pipes 20% 7 Construction of bodies of motor vehicle and Construction of trailers 20% 8 Services and maintenance of instruments, equipments, appliances, plants and machinery 80% 9 Tire rereading 30% 10 Processing and supplying of photogr .....

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ting on any motor vehicle, vessels of every description meant for plying on water or any other vessel propelled by mechanical means, any aircraft or any equipment or part of any of the aforesaid items. 20% 19 Erection, installation and commissioning of wind turbine generator including power evacuation system 30% 20 Supply and laying of cables 20% 21 Construction of railway coaches or under-carriages supply by railways 30% 22 (a) Electrical contractors: (I) High Tension transmission lines 20% (ii .....

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rring them along with land or interest underlying the land to opt for a composition scheme notified under section 11(3). Government of Odisha have come out with two notifications dated 16.01.2016 made effective from 01.10.2015. Government of Odisha, department of finance dated 16/01/2016 no 1457/FIN-CT1-TAX-0035/2015- applicable to dealers transferring goods involved in the execution of works contact Government of Odisha, department of finance dated 16/01/2016 no 1461/FIN-CT1-TAX-0035/2015- appl .....

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sition under this notification- Shall not claim any input tax credit under the Act; Shall not claim any deduction with respect to labour and like charges provided under section11(2); Shall not issue any Tax Invoices ; and Shall maintain accounts and records as required under section 61 of the Act. Procedure to avail the scheme:- The dealer who opts for payment of tax by way of composition shall make an application electronically in form C-1 together with the details of work(s). An option once ex .....

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applicable to the dealer as a contractor. In case the dealer furnish to the assessing authority, the details of the contractee in Form C-4, the assessing authority in form C-3 shall intimate to the contractee (deducting authority) to deduct tax at source at such rate and on such percentage of the gross value of the works, as specified in this notification. Liability- the liability on the works contractor would be in lieu of amount of tax payable by him under section 9 (a). Types of Dealer execut .....

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ively for use in execution of the works contract by him or by way of inward transfer of stocks from other States or by way of imports;; Type B Dealer:- A registered dealer opting to pay composition tax under this Scheme shall be entitled to Make interstate purchases of goods required for the execution of the contract under this Scheme as a registered dealer. By way of inward transfer of stocks from other States or by way of imports from other countries solely for the purposes of utilizing the sa .....

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(1) (2) (3) (4) 1. Every registered dealer engaged in execution of works contracts of the following categories and incidental or ancillary activities in connection with or thereto: (1) Civil Contracts, Such as, (a) Civil Construction, improvement, modification, repair and maintenance, electrification, sanitary fittings, flooring, plastering, finishing, white washing, painting, polishing, interior decoration, etc. of any immovable property, including a building or a complex- residential or comme .....

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ng systems, audio-visual systems, security systems, computer systems, EPABX/ telecommunication system and other similar contracts. (e) Construction and maintenance of Civil works, such as- (i) Green houses and other similar structures. (ii) Swimming pools. (iii) Bridges, flyovers, dams, barriers, diversions, or other similar structures. (iv) Canal, spillways or other similar activities. (v) Roads, causeways, subways, or other similar contracts. (vi) Rail, railway over bridges or other similar ac .....

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fabrication, tailoring, embroidery and other similar activities. (iii) Electro plating, electro galvanizing, anodizing, power coating and other similar activities. (iv) Re-treading of old tyres 2% 4% Composition scheme for real estate developer, builder Applicability to dealer- the scheme would be available to a dealer who undertakes the construction of flats, dwellings or buildings or premises and transfer of property along-with land or interest underlying the land to pay tax, by way of composi .....

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anges provided under section11(2); Shall not issue any Tax Invoices ; and Shall maintain accounts and records as required under section 61 of the Act. Procedure to avail the scheme:- The dealer who opts for payment of tax by way of composition shall make an application electronically in form C-1 together with the details of work(s). An option once exercised shall remain binding on the dealer until he opts to go out of the scheme by exercising option in Form C-2 Upon receipt on an application, th .....

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