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As per Service tax Valuation Rules,

There are 2 types of Works Contract

  • Original Works Contract (For New Construction Work)
  • Other than Original Works Contract (For Repair and Maintenance Work)

 

Original Contract

  • It is assumed that a Original Work Contract is 40% Services and 60% Goods
  • There is 40% Service Component in case of Original Contract,hence Service tax is applicable only on these 40%
  • Example: -
  • Suppose Work Contract is of 100000
  • Service Component=40% of 100000=40000
  • Service tax  @ 15% =40000*15%=6000

 

Works Contract

  • It is assumed that a Original Work Contract is 70% Services and 30% Goods
  • There is 70% Service Component in case of Original Contract,hence Service tax is applicable only on this 70%
  • Suppose Work Contract is of 100000
  • Service Component=70% of 100000=70000
  • Service tax  @ 15% =70000*15%=10500

 

Summary

Particulars

Original Contract

Other than Original Contract

What type of Contract

is covered

Original works like New Construction,installation,commissioning

Maintenance Repair work etc

Component of Service

It has less component of service

Only 40% of contract is service

It has more component of service

70% of contract is service

Service tax Rate

15%*40%=6%

15%*70%=10.5%

 

  1. Tax Practical
  2. Practical WCT (Work Contract Tax)
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About the Author

CA Maninder Singh's photo - Expert in Practical Accounts, Taxation and Efiling
CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 6 years. He provides courses for Practical Accounts, Taxation and Efiling at teachoo.com .
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