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Is there any provision for compounding system of tax under VAT?

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 asked

Is there any provision for compounding system of tax under VAT?

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3 Answers
Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 answered

There is a simplified system of collecting VAT on the Works Contract. It is called compounding system. Under this system the dealer has to pay VAT on the total value of Works Contract. The rate of tax is prescribed in the section itself. 1 Civil works contract two per cent of the total contract value of the civil works executed. 2 Civil maintenance works contract two per cent of the total contract value of the maintenance works executed. 3 All other works contracts five per cent of the total contract value of the works executed. The benefit of this compounding system is that dealer is not be required to maintain accounts of his business under this Act or the rules made thereunder except the records in original of the works contract, extent of their execution and payments received or receivable in relation to such works contract, executed or under execution. CONDITIONS FOR AVAILING THE COMPOUNDING SYSTEM UNDER VAT Act: This simplified system of Taxation of works contract under VAT comes with many conditions. If these conditions are not met with then the assessing officer will try to tax the dealer under section 5 at the maximum rate of 14.5%. The following are the conditions: 1. The dealer should apply to the assessing authority along with the first monthly return for the financial year or in the first monthly return after the commencement of the works contract that he wants to opt for compounding system of tax payment for works contract. 2. The dealer should not make any interstate purchases. 3. The dealer should not collect the tax from the contractee. 4. The dealer should not take input tax credit on the goods purchased by him. 5. The option exercised once shall be final for that financial year.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 answered

Yes there is. It is available for, on their option: 1) The dealers who effects second and subsequent sale in the State. The Act provides tax not exceeding 1% as notified by Government on the turnover for the above dealers whose total turnover for a year is less than Rs. 50 lakhs. Government have notified this rate as 0.5% 2) The Works contractors may opt to pay at compounded rates at 2% (civil), 4% (others) instead of paying tax at the rate prescribed for the goods involved. 3) The hotels, restaurants and sweet stalls may opt to pay tax at compounded rate prescribed in the Act at slab rates where total turnover is not less than Rs.10 lakhs but not more than Rs.50 lakhs. No Input tax credit is allowable to those dealers who have opted for compounded system. Thanks

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 answered

Security is not mandatory under VAT Act. In case, there is anapprehension of evasion of tax, the sales tax officers may ask for security. This is also applicable to the dealers applying for voluntary registration under the VAT Act.

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