Gujarat VAT & CST

FAQs: TDS Provisions under Gujarat VAT Laws

The Gujarat VAT Amendment Act of 2009 has introduced a new provision for obtaining Tax Deduction Account Number (TDN) by the person who awards works contracts exceeding Rs.1 crore. Let us revisit the provisions of TDS on Works Contracts under the Gujarat VAT laws through the following FAQs:

1. Who is liable for tax deduction?

A person who awards “specified works contract” is responsible for deduction of tax from the payments of “specified sale price” to the contractor. The TDS rates have been specified in the Notification issued by the State Government.

The terms “Specified Works Contract” & “Specified Sales Price” have been defined under the VAT Act. which are as under:

(i) “specified sale price” means the amount of valuable consideration paid or payable for the works contract after deducting the amount of labour charges for execution of such works contract and the value of the goods purchased in the course of inter State trade or commerce or in the course of import of goods into territory of India for use in such works contract.

(ii) “Specified works contract” means the work contract, the specified sale price of which exceeds Rs.One Crore.

2. What is the liability of the contractor who awards sub-contracts after getting such specified works contract?

A contractor who is awarded a specified works contract, awards the said works contract to sub-contractors either in whole or in part, then in such case, the contractor is liable for deduction of tax at the notified rate from the specified sale price to be paid to the sub-contractor irrespective of the value of the sub-contract.

3. How will the principal awarding the contract or contractor awarding the sub-contract determine the amount on which TDS is to be made?

The contractor will have to furnish to the person awarding a specified works contract a statement in the prescribed form [Form-702] and based upon such certificate, the person shall deduct the amount of tax from the amount shown in column 10 of such certificate.

In case where the specified works contract has been awarded to sub-contractors, each sub-contractor also will have to furnish such statement to the contractor and based upon such certificate, the contractor shall deduct the amount of tax from the amount shown in column 10 of such certificate.

4. On which amount will TDS be made by the principal if the contractor has deducted & deposited TDS from payments to sub-contractor?

In case where the contractor has awarded specified works contract to sub-contractors and the contractor has deducted the tax from the payments of specified sale price to the sub-contractor and paid such amount in to the Government Treasury within the prescribed time, then in that case, the principal shall not be liable for deduction of equal amount of tax from the payment of specified sale price to the contractor.

5. What is the liability of a person to obtain TDN?

A person liable for tax deduction shall have to apply in the prescribed form and within the prescribed time to the Commissioner for obtaining Tax Deduction Account Number (TDN) and he will have to quote such TDN in the documents, statements and returns as may be prescribed.

6. How is amount of TDS made treated in the hands of the contractor/ sub-contractor?

The amount of tax deducted is treated as amount received by the contractor or sub-contractor as part of specified sale price.

7. What is the liability of the person after deducting tax at source?

The person deducting tax has to pay such amount in to Government Treasury within the prescribed time and obtain a treasury receipt therefor, and furnish a copy of the receipt to the contractor within thirty days from the date of obtaining such receipt.

8. Whether any TDS Certificate is to be furnished by the deductor?

The person deducting tax has to furnish to the contractor or sub-contractor a certificate in prescribed form [Form-703] showing the details of the amount of tax deducted from him.

9. How will Credit of such TDS be available against the tax liability?

The deduction made by the person is treated as payments of tax or the lump-sum tax on behalf of the contractor or sub-contractor who will get credit of such TDS in the assessment of tax for the relevant year on production of certificate and a copy of the Treasury receipt challan furnished by the person deducting such tax.

10. What is the liability of the contractor/ sub-contractor in the event of non-deduction of tax?

The contractor or sub-contractor is liable to pay tax on specified sale price where the person awarding the works contract has failed to deduct tax from the payments of specified sale price to the contractor or sub-contractor.

11. What is the penalty for non compliance of the TDS provisions?

In case where the tax deduction is not made OR the amount deducted is not paid in to the Government Treasury within the prescribed time, the Commissioner can impose penalty not exceeding twenty five percent of the amount required to be deducted.

12. What is the Interest payable in case of default?

In case where the amount of tax deducted is not paid within the prescribed time, interest @ 18% is payable for the period of default.

13. Whether the person holding TDN is required to file any separate Returns?

The person deducting tax is liable to furnish return in prescribed form and prescribed time to the Commercial Tax Officer within whose jurisdiction the person resides or carries on his business.

Please contact us for rates of TDS for different categories of Works Contracts, prescribed time limits & prescribed forms.

Tags: Legal-Updates