However, there may be a case that the service provider is paying VAT/Sales tax not on the actual value of goods involved in the execution of works contract but under a composition scheme specified under respective State VAT/sales tax law, then service element will consist of following components as mentioned in Explanation (b) to the Rule 2A of said Valuation Rules: (a) labour charges for execution of the works; (b) amount paid to a sub-contractor for labour and services; (c) charges for planning, designing and architect’s fees; (d) charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract; (e) cost of consumables such as water, electricity, fuel used in the execution of the works contract; (f) cost of establishment of the contractor relatable to supply of labour and services; (g) other similar expenses relatable to supply of labour and services; and (h) profit earned by the service provider relatable to supply of labour and services; 1.7 Standard Deduction Scheme The Standard Deduction scheme in works contract service is very famous and quite adoptable under service tax because of reduced tax rate and it becomes easy for contractors to charge service tax when it is difficult to either derive the value of works contract or separate it in terms of supply of goods or services. However, like any other tax scheme, it has its own disadvantages. Rule 2A(ii) provides that where value has not been determined under Rule 2A(i) as above, the person liable to pay tax on the service portion involved in the execution of the works contract shall determine the service tax payable in the following manner, namely:- With Effect From 1st October, 2014 [Notification No. 11/2014 Dated 11 July,2014]: In Rule 2A of the Service Tax (Determination of Value) Rules, 2006, category and of works contracts are merged into one single “B” “C” category, with percentage of service portion as 70%; this change has
However, there may be a case that the service provider is paying VAT/Sales tax not on the actual value of goods involved in the execution of works contract but under a composition scheme specified under respective State VAT/sales tax law, then service element will consist of following components as mentioned in Explanation (b) to the Rule 2A of said Valuation Rules: (a) labour charges for execution of the works; (b) amount paid to a sub-contractor for labour and services; (c) charges for planning, designing and architect’s fees; (d) charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract; (e) cost of consumables such as water, electricity, fuel used in the execution of the works contract; (f) cost of establishment of the contractor relatable to supply of labour and services; (g) other similar expenses relatable to supply of labour and services; and (h) profit earned by the service provider relatable to supply of labour and services; 1.7 Standard Deduction Scheme The Standard Deduction scheme in works contract service is very famous and quite adoptable under service tax because of reduced tax rate and it becomes easy for contractors to charge service tax when it is difficult to either derive the value of works contract or separate it in terms of supply of goods or services. However, like any other tax scheme, it has its own disadvantages. Rule 2A(ii) provides that where value has not been determined under Rule 2A(i) as above, the person liable to pay tax on the service portion involved in the execution of the works contract shall determine the service tax payable in the following manner, namely:- With Effect From 1st October, 2014 [Notification No. 11/2014 Dated 11 July,2014]: In Rule 2A of the Service Tax (Determination of Value) Rules, 2006, category “B” and “C” of works contracts are merged into one single category, with percentage of service portion as 70%; this change has
1424867928Opening%20the%20Jugglery%20of%20work%20contract.docx