Karnataka VAT - Composition scheme for Works Contractor - Professionals - Taxation - TIK Share
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Karnataka VAT - Composition scheme for Works Contractor


Vedanta Deshika

2014-02-08

Following are the basic conditions for a Works Contractor who can opt Composition Scheme under VAT
 
Who can apply for Composition Dealership under WCT ?
 
There is tunover limit for Works contractor to getinto Composition sceme, only that -   
  1. He should be a registered dealer.
  2. He should not be an unregistered dealer in the preceding one year.
  3. He shall not be a casual dealer.
  4. On the date of opting for composition he shall not have in his stock, any goods brought from outside the state.
  5. He shall not be dealer selling liquor.
  6. He shall not effect any CST sale.
  7. He shall not effect any exports.
  8. Dealer need not maintain detailed books of accounts  
How to pay taxes and file returns ?
 
Works contractor is required to pay 4% Composition tax on total CONSIDERATION for the contract. Monthly VAT 120 has to be filed within 15 days from the end of the month. He cannot claim Input Taxes. 
 
Some basic conditions are :- 
  1. He should pay tax at regular rates (not composition amount) in respect of materials used in works contract that have been  purchased/procured from outside the state.  Tax payable shall be with reference to purchase value and it shall be deducted from total consideration.
  2. He may collect the composition tax.
  3. He shall not issue tax invoices; he shall issue only bill of sale.
  4. Composition amount need to be paid on total consideration minus the composition tax.
  5. Composition amount is not payable in respect of sub-contract payments.
  6. In respect of local sales (other than works contract) – tax  shall be paid at regular rates.
 
Some very important requirements :- 
  1. He shall not do inter-state works contracts.
  2. He shall not do export works contracts.
  3. He shall not claim any input tax deductions.
  4. He shall pay tax on URD purchases and such tax shall be over and above composition amount.
 
 Conditions for withdrawal from Composition Scheme :-  
  1. Minumum one year , he should be in the Composition Scheme before moving into Regular Scheme
  2. He has to a final return.
  3. Composition certificate has to be surrendered to the Department.
  4. From the 1st day of the following month, he should pay taxes on regular scheme.
  5. Cooling off period for re-entry into Composition Scheme is ONE YEAR 
Having said all these and seen the above conditions with limitations and advantages in the scheme , it is always advisable for the dealer to do some Cost -benefit analysis with the regular scheme before opting for Composition scheme.

CA Pulkit Sharma

2014-02-08

A good post. This is probably best post by you, keep the level of tikshare high.

Suppose someone is doing business for a long time without VAT registration is caught by VAT officers.

Can he choose the type of registration, can he opt between Works contract rates or Normal Rates?

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amol kulkarni

2014-05-09

I GOT IT , WHICH INFORMATION IS NEED TO MY CLIENT.

 

 

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CA Pulkit Sharma

2014-05-10

@amol

Thank you for liking the post. Its very well explained by CA Vedanta.

If you also have some knwoledge or doubts, you can discuss on tikshare.

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Vedanta Deshika

2014-05-17

Hi Amol Kulkarni,

 

Thanks for joining Tikshare. Kindly ask any kind of doubts and suggestions either on my mail id vedantadeshika@gmail.com or directly on tikshare.com/forum/post

 

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MADHUSUDHANA RAO KONDURI

2015-02-05

HI VENDANTA

 

THANK U FOR SHARING VALUABLE INFORMATION

MY QUESTION IS FOR CONTRACOR WHO GIVE THE WORK TO SUB CONTRACTOR IF THE SUBCONTRCTOR IS BILLING IN COMPOSITION THEN CONTRACTOR HOW TO BILL TO CUSTOMER ?

TAX ON PURCHASES FROM SUBCONTRACTOR IS AVAIBALE INPUT TAX CREDIT IF CHOOSE TO NON COMPOSITION ?

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Narasaiah Narra

2015-06-18

Thank you CA Vedanta Deshika by providing useful information.

I have still some doubts in Works contract -composition scheme. 

There are cases where contractor issues materials to the subcontractor for consumption in the subcontracted work. These issued materials may be issued at (a) actual procurement price (b) at fixed agreed price (irrespective of the actual procurement price) as agreed in the work order, or at (c) price higher than procured price, say, adding 5% of material cost towards material handling charges to the material cost. Contractor recovers these materials by raising debit note to the subcontractor. In these transactions, shall the contractor pay VAT? The subcontractor uses these materials only in the subcontracted work.

Can you clarity the same pls............

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