Service Tax on Works Contract
Types of work that fall under the works contract category:
1) Erection, Commission or installations of plants, electronic devices, drainage laying, pipelines, thermal and sound insulators e.t.c.
2) Construction of new buildings, pipelines, etc primarily for commercial purposes
3) Construction of residential complexes or new storied buildings.
4) Repair of the services mentioned in (2) and (3).
5) Repair of cars.
As per Rule 2 A of Service tax valuation rules there are 2 types of works contract:
a) Original (new constructions)
b) Other than original (Repair and Maintenance)
Rate of Original Contract:
It is considered that original work contract is 40% Services and 60% goods. Tax is applicable on this service component
That is if Rs 2,00,000 is for work contract the service component is 40% therefore Rs 80,000 and Service tax @ 15% Rs 12,000
Rate of Contract other than original works:
The service portion involved in the execution of works is 70% of the total works contract. Hence tax id applicable on this 70%.
That is if Rs 2,00,000 is for the work contract the service component will be Rs 1,40,000 + Service Tax @15% Rs 21,000.
Exemption of Tax:
The list of various work contract services that are exempted from service tax are as follows:
a. Service provided to the government, a local authority or a governmental authority;
b. Construction for the use of the general public;
c. Original work pertaining to infrastructure;
d. Sub-contractor services.
Point of taxation:
Both the service provider and the recipient are supposed to keep an invoice. However the point of taxation of both parties differs. For the recipient the point of taxation is the amount he paid for the service and for the service provider it is the work provided.