TaxTMI 
TaxTMI 
Would VAT be applicable on construction contracts awarded to a contractor for labour and also procurement, storage, handling and usage as per standard quantity of material to be used for a building contract (materail to be invoiced directly to owner by the respective vendors from which material procured and paid directly)?
Tax efficient works contracts
02 Sep 2012 
2 Replies 
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VAT on works contracts: tax applies to transfer of goods during execution; special rules for out-of-state purchases and advances.
VAT on works contracts is levied on the value of transfer of property in goods occurring during execution; where no out-of-state goods are procured, tax is charged as a percentage of total consideration, while out-of-state purchases attract tax at the regular rate on goods plus an additional percentage of consideration after adjusting for tax-paid value. Mobilization advance is not taxable absent any transfer of property in goods, though VAT invoiced on advances must be paid. Deductions for labour require documentary proof or, if unascertainable, a prescribed standard deduction. (AI Summary)
VAT on works contracts is levied on the value of transfer of property in goods occurring during execution; where no out-of-state goods are procured, tax is charged as a percentage of total consideration, while out-of-state purchases attract tax at the regular rate on goods plus an additional percentage of consideration after adjusting for tax-paid value. Mobilization advance is not taxable absent any transfer of property in goods, though VAT invoiced on advances must be paid. Deductions for labour require documentary proof or, if unascertainable, a prescribed standard deduction. (AI Summary)