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" Construction / Works Contract under Negative List Regime "

 

1.Declared Service

 

  • Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of certificate of completion by a competent authority.[Already taxable w.e.f. 01-07-10]
  • Service portion in execution of a works contract

 

2.Construction Service

 

1.Sale of flats by builder in lieu of land

 

The builder receives consideration for sale of units from a) independent buyers in cash and b) land owner in form of land rights [value being value of land at the time of transfer]

 

2.Flats given by builder to landowner as per agreement

 

The landowner gets certain flats in lieu of transfer of land and further sells these to various customers. [treated in educational guide by CBEC, as liable to tax, whereas tax is already paid by builder on same]

 

3.Customer transferring flats after booking

 

Sometimes customers transfer booking of flats to a buyer after making part payment. As per the educational guide by CBEC, the customer is not providing any taxable service and thus not liable to tax. Further such transfer is also treated as “transfer of benefit to arise out of land and treated as immovable property and outside the ambit of tax [On the similar lines the landowner as per above para should also not be taxed for a sale to another buyer as he is also not providing any service and has merely purchased flats by transferring his land]

 

4.Conversion of deposits into sales consideration

 

Interest in case of conversion of loans/ deposits into sales consideration instead of returning is treated as part of the value of service and will be taxable.

 

5.Nature of unincorporated JV’s with profit sharing agreements

 

TRU has stated that that services provided, both by the so constituted JV or profit sharing association of persons (AOP), as well as by each of the individual persons constituting the JV/AOP will be liable to be taxed separately, subject of course to the availability of the credit of the tax paid by independent persons to the JV/AOP and as otherwise admissible under Cenvat Rules.

 

3.Abatement under construction Service

 

  • 75% abatement of amount charged for sale to buyer, effective rate 3.09%.
  • Amount charged includes value of land
  • It also includes value of goods and services provided by buyer but excludes amount paid to buyer and sales tax.
  • Cenvat Credit of inputs not allowed

 

 

4.Works Contract

 

Defined as:

  • Contract wherein “transfer of property in goods involved in execution of such contract is leviable to tax as sale of goods”

 

  • Such contract is for the purpose of carrying out
  • Construction
  • Erection, commissioning, installation,
  • Completion, fitting out,
  • Repair, maintenance,
  • Renovation, alteration

 

  • Of any moveable or immoveable property

 

  • Or for carrying out any other similar activity or a part thereof in relation to such property.

 

5.Note

 

  • Only service portion of works contract is liable to tax

 

  • Labour contracts are not part of works contract

 

  • AMC, servicing of motor vehicles, painting, commissioning of plants etc will be treated as works contract

 

6.Valuing works contract

 

[Refer Rule 2A of Valuation Rules]

 

“Value of Service Portion of Works contract” is determined as:

 

  1. Method 1: Gross amount charged (-) value of property in goods transferred in execution of works contract [material cost]

 

  • Gross amount charged does not include Sales tax/VAT

 

  • Value of Works Contract includes following used in execution of works contract:

 

(i) Labour charges (ii) Amount paid to sub-contractor for labour and service, (iii) Charges for planning, designing and architect’s fees (iv) Machine hire for execution (v) Cost of consumables such as water, electricity, fuel used (vi) Expenses relatable to supply of labour and services (vii) Profit relatable to supply of labour and services

        

  1. Method 2: If VAT payable then deduction of “actual value adopted” for goods transferred.

 

  1. Method 3: If not determined as above then Value =

 

 

Value =  % of Amount Charged

Particulars

Effective Rate

40%

In case of  "Original Works"

4.944%

70%

For maintenance, repair, reconditioning, restoration of goods

8.652%

60%

Other works contract

7.416%

 

  • Total Value includes material supplied by others (FOC)
  • “Original Works” means
    • New construction,
    • Addition/ alteration to abandoned/damaged structure to make them “workable”
  • Other works contract include including contracts for maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical  fittings.

 

  • No Cenvat credit on goods forming part of transfer. [However Cenvat credit should be available on input service and capital goods as not restricted specifically]

 

7.Reverse Charge under Works Contract

 

  • Service Provider: Individual/HUF/Partnership/ AOP
  • Service Receiver: A Corporate business entity located in taxable territory
  • Liability of Service Provider and Service Receiver: 50% each
  • In works contract services, where both service provider and service recipient is the persons liable to pay tax, the service recipient has the option of choosing the valuation method as per choice, independent of valuation method adopted by the provider of service

 

 

8.Exemptions

 

Exemption to construction, Works contract and related services

Service Provided

Service Recipient

Exemption

Construction
Erection
Commissioning
Installation
Completion
Fitting out
Repair
Maintenance
Renovation
Alteration

Government / local authority / government authority

Civil structure or any other original works meant predominantly for a non-industrial or non-commercial use or non business or non professional use

A historical monument, archaeological site as specified

A structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment

Canal, dam or other irrigation works

Pipeline, conduit or plant for (i) water supply (ii) water treatment (iii)sewerage treatment or disposal

A residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to 65B(44)[MP, MLA…]

Repair or maintenance of vessel or aircraft

Any

Road, bridge, tunnel, or terminal for road transportation for use by general public

Civil structure or  any other original works pertaining to a scheme under JNNURM and RAY

Building owned by an entity registered under section 12 AA of the Income tax Act, 1961and meant predominantly for religious use by general public

Pollution control or effluent treatment plant, except located as a part of a factory

Structure for funeral/ burial/cremation

Construction
Erection
Commissioning
Installation of original works

Any

Airport, port or railways, monorail or metro

Single residential unit otherwise as a part of a residential complex;

Low- cost houses up to a carpet area of 60 square mtr/house in approved housing project

Post- harvest storage infrastructure for agricultural produce including a cold storages for such purposes

Specified mechanised food grain handling system

Services provided by a sub-contractor to main contractor providing exempted works contract services are exempted.

 

 

9.Miscellaneous

 

  • “Residential complex” means any complex comprising of a building or buildings, having more than one single residential unit [more than one taxable].

 

  • “Single residential unit” single residential unit” means a  self-contained residential unit which is designed for use, wholly or principally, for residential purposes for one family.

 

  • “Government authority”   means a board, or an authority or any other body established with 90% or more participation by way of equity or control by Government and set up by an Act of the Parliament or a State Legislature to carry out any function entrusted to a municipality under article 243W  of the Constitution

 

  • Construction of road for general public- Non-taxable; Others Taxable

 

  • Construction of hospital, educational institute for government- Non-Taxable; Others-Taxable

 

 

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