Today we try to simplify the very complicated topics VAT and Service Tax on Work Contracts.
Definition of work contract service –
In work contract service both supply of material and service is covered. Vat is levied on supply of material and service tax is levied for providing of service.
VAT and Service Tax Rate on Work Contracts in Maharashtra –
There are two different provisions in mvat for work contract first is for dealer who can maintain proper books of accounts and other who cannot maintain the books of accounts.
Option 1 – Segregate the material and service portion
If a dealer is able to do segregation of material and service provide than he can pay the vat on material supply as per the schedule rate of material provide in Mvat act. In this method full 100 percent input credit of set off is available. It is beneficial for big projects.
Option 2 – Unable to Segregate the material and service portion
If a dealer is unable to do segregation of material and service provide than he can pay the vat as per composite scheme. In Composite scheme there are three option available dealer can opt for any option. this option is litigation free and beneficial for small traders.
(I) VAT for the builder and developers –
VAT rate is 5 percent for the builder and developers. Builder and developer will pay the vat @5% and can take the input credit on material received @ 1%.
(II) VAT for other than builder and developers –
Under Maharashtra VAT tax is levied at three different rates dealer can opt any option as per his choice
(A) Levied vat @8 % and service tax @ 5.6%
Dealer can opt for paying VAT @ 8 percent on the full value of contracts. In this case dealer can take the input credit of 64% of set off and
Service tax if Main contract – service tax will be levied on the 40% of the gross receipts. so 14.5*40% =5.8% Service tax will be levied. Input credit of service tax is not available as user already taken abatement on 60% of values.
(B) Levied vat @12.5 %
Dealer can opt for paying vat @12.5% on the Abatement available in Maharashtra for Civil Works it is 30%, for Plant & Machinery 15% , for AMCs 40% and for others 25% . Dealer can claim the 100 percent input vat credit on paying the same.
(C) For Repairs contract
For repairs contact service tax will be on 70% of the gross receipts. Service tax will be levied on the 30% of the gross receipts. so 14.5*30% =10.15% Service tax will be levied. Input credit of service tax is not available as user already taken abatement on 60% of values. If the service receiver is company and provider is other than company than reverse charge 50% will be apply. in that case service tax rate will be 5.075%.
Service tax Rate on Work Contracts
|Service tax for main contract||5.8%|
|Service tax for repairs contract||10.15|
|Service tax for repairs contract (Reverse charge)||5.075|