WCT _Work Contract Tax-TN_

							                             WCT – in Short (Based on TN VAT Act)


What is works contract?
Some contracts are for contracts for labour, work or service and not for sale of goods,
though goods are used in executing the contract for labour, work or service e.g.
when a contractor constructs a building, the buyer pays for cost of building which
includes cost of building material, labour and other services offered by the Contractor.
Property in building is passed on to buyer and there is no contract for supply of
building material as such.


It is difficult to establish whether a particular contract is „contract for work‟ or
„contract of sale‟ and rigid and inflexible fast tests cannot be laid down. It depends
on main object of the parties, circumstances and custom of trade. Generally,
a contract of sale is a contract whose main object is the transfer of the property in,
and delivery and possession of, a chattel as a chattel to the buyer. Where the main
object of work undertaken by the payee of the price is not the transfer of a chattel
qua chattel, the contract is one for labour and work. The aspects like ownership of
material, value of skill and labour compared to value of material can be considered,
but these are not conclusive.


Some contracts are essentially contracts of skill & labour e.g. tailoring work, printing
or cyclostyling etc. These jobs are not covered under 'works contract'. - - A contract
to paint a portrait is a contract for skill and labour and not a contract for sale of
goods, as substance of contract is for artist‟s skill and it is only ancillary to that there
would pass to the customer some materials like paint and canvas.


Central Sales Tax will be payable on goods involved in works contract, if goods move
from one State to another on account of such works contract from 11th May 2002
onwards.


Provisions from Act & Rules


From the side of entity who is Deducting WCT for Work Contracts (ie., who is availing the
Services): (For in depth refer Sec 13 of TN VAT Act).
Definition: “every person responsible for paying any sum to any dealer for execution
of Works contract shall, at the time of payment of such sum, deduct an amount
calculated, at the following rate, namely:-
   i)       Civil/Civil maintenance work contract – 2%; it means:
                   Construction of new buildings, bridge, road, runway, dam or canal
                   Lining, tiling, painting or decorating which is an inherent part of the
                    new construction
                   Any repair, maintenance, improvements or upgradation
                   Fixing and laying all kinds of floor tiles, mosaic tiles, slabs, stones,
                    marbles, glazed tiles
                   Painting, polishing partition, wall paneling, interior decoration, false
                    ceiling, carpeting and extra fittings or any improvements on
                    existing structures.
   ii)      All Other works contract – 4%


No WCT Deduction required in the following Cases:
   a) No transfer of property in Goods or goods in some other forms is involved
         in the execution of Work contract (Ref. 13(1)(a))
   b) Transfer of property in goods or goods in some other forms is involved in the
         work contract in the course of Inter-state/Imports. (Ref. 13(1)(b))
   c) The dealer produces a certificate in the form of “Form S” or paid the tax
         u/s 5 of TN VAT Act. (Ref. 13(1)(c))


Provided further that, no deduction shall be made under this section where the
aggregate amount paid/payable or credited during the year in the execution of Work
contract including civil work contract does not exceed Rs. 1,00,000/-.


Other Provisions relating to WCT:
        Such tax deductions shall deposit to the Assessing Authority having
         jurisdiction over the person or to any other authority authorized by Dy.
         Commissioner on or before 20th of the succeeding month in which the
         deduction was made with “Form R”. (Refer Rule 9(1))
        Who makes the deduction & deposit, shall issue the certificate in Form T (Rule
         9(2)) within 15 days from the date of such deposit.
      On furnishing of Certificate of Deduction in Form T shall be adjusted by the
       assessing authority towards tax liability of dealer who is falling u/s 5 or u/s 6
       as the case may be. (Sec. 13(4)).
      Any person who has not deducted the WCT in the execution of work contracts
       or not deposited within 20th of next month, shall pay in addition to the
       amount required to be deducted and deposited, Interest 1.25% per month for
       the entire period of default.
      Where the dealer proves to the satisfaction of the assessing authority that he
       is not liable to pay tax u/s 5, assessing authority shall refund the amount
       deposited u/s 13(2), after adjusting the tax arrears if any.
      Any work contract involved more than one nature of work, the rate of tax
       shall be determined separately and Form R & T to be filed separately (ie.,
       Form R & T needs to file vendor wise, contract wise)
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From the side of Work Contractors (ie., who is providing the Services): (For in depth refer
Sec 5 & 6 of TN VAT Act).


[Sec 5 of TN VAT Act: Levy of Tax on transfer of goods involved in the Works
contract]
Definition: “Notwithstanding anything contained in this act but subject to the
provision of this act, every dealer shall pay, for each year, a tax on his taxable
turnover, relating to his business of transfer of property in goods involved in the
execution of Work contract, at such rates as specified in the 1st Sch”.


The dealer, who pays tax under this section, shall avail input tax credit on goods
specified in the 1st Sch. Purchased by him in this State.


The dealer has to file their return in Form I.


Sec 6 [Payment of tax @ compounded rates by works contractor], Every
Dealer, other than the dealer who purchases goods from outside the State of TN or
Import goods from outside the Country may at his option, instead of paying tax u/s 5,
pay on the total value of the works contract executed by him in a year, tax
calculated at the following rate:
Civil Wok/Civil work maintenance contract              -       2%
All other works contract                                         -      4%


Any dealer, who executed work contract, may apply to the assessing authority along
with the 1st monthly return for the financial year or in the 1st monthly return after
commencement of the work contract, his option to pay tax u/s 6(1).


The option exercise is final for that financial year (Ref. Sec. 6(3)).


The dealer who pays tax under this option shall not collect any amount by
way of tax or purporting to be by way of tax and shall not be entitled to
input tax credit on goods purchases (Ref. Sec 6(5)).


Practical procedure - Monthly return:
    1. Needs to prepare WCT abstract as follows during the month
                             Sl. No
                             Name & Address of the Dealer (who is going to deduct &
                              deposit)
                             Bank Details
                             Total DD Amount
                             Name & Address of the Dealer (from whom the tax deducted)
                             TIN
                             Bill Amount
                             Rate of Tax
                             TDS Amount
                             Credit No.
    2. Prepare Form R & Form T (in prescribed format) for each vendor & contract
        (Eg. If one vendor carrying out 2 or more contracts then separate Form R & T
        needs to file for each contract).
    3. Take 3 copies of Form R & Form T and attach as follows:
  For Assessing Officer, TDS Circle      For Vendor from whom we                 For Office copy
                                             have deducted the WCT
Form R – 2 Copies (Original &            -                            Form R – 1 Copy (Triplicate) after
Duplicate)                                                            acknowledgement from TDS Circle.
Form T – 1 Copy (Duplicate)              Form     T   –    1   Copy   Form T – 1 Copy (Triplicate) after
                                         (Original)                   acknowledgement from Vendor
4. Get acknowledgement from TDS Circle in Form R for proof of WCT Deposit.
5. After filing the return submit the Form T to the Vendor within 15 days from
   the date of above deposit & get the acknowledgement in Xerox copy of Form
   T for the proof of submission of certificates.
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