Impact of State Budgets on Construction Sector – Compiled by Consult Construction

Impact of State Budgets on Construction Sector – Compiled by Consult Construction

• Every year we need to keep ourselves updated with the various changes that impact our businesses. Various changes are being made during the annual budget event at both central and state level. A lot of focus goes on the changes made by Central Budgets, as a result we tend to miss the state budgets.
• Like each year, this year also a lot of changes have been made in the state budgets. Each of those changes may not be relevant to the Construction Sector. Thus an attempt has been made by way of this article to study the various State  budget amendments applicable to the project / construction sector.
• The states identified are as below :-

Lets look at detailed changes :-
Maharashtra VAT :- The relevant changes under Maharashtra VAT are as below :-
1.     Amendment of section 2 of Mah. IX of 2005 – Defining the value of sales and Purchases :-
(1) in clause (20), after Explanation I, the following Explanation shall be inserted, namely :—
“Explanation—IA.—Purchase price shall not include the amount of service tax levied or leviable under the Finance Act, 1994 (32 of 1994) and collected separately by the seller.”;
(2) in clause (25), after Explanation I, the following Explanation shall be inserted, namely :—
“Explanation—IA.—Sale price shall not include the amount of service tax levied or leviable under the Finance Act, 1994 (32 of 1994) and collected separately from the purchaser”.
2.   VAT cannot be levied on Service tax Amount :- If Service Tax is included in the turnover of Sales and purchases, then for the purpose of turnover of MVAT, service tax will not be included in it; i.e. VAT is not levied on Service Tax.A sigh of relief as cascading effect of tax has been removed.
3.  Stringent provisions that may affect the builders :- Now, Department can issue notice of Assessment if he they have “Reason to Believe” that the Dealer has evaded Tax or has paid less Tax.The department can go back upto 6 years.
 
Tamil Nadu VAT :- The relevant changes under Tamil Nadu  VAT are as below :-

1. Works contract relating to sizing of yarn will be exempted from the present levy of VAT.
2. Input Tax Credit reversal imposed at the rate of 3 per cent on the inter-state sale of goods as per proviso to section 19(2) (v) of Tamil Nadu Value Added Tax Act 2006, will be withdrawn henceforth.
3. Clause (c) under Section 19(5) of TNVAT Act, 2006 will henceforth be withdrawn to enable the dealers to claim Input Tax Credit on the inter-State sale of goods without ‘C’ form. Above measure will eliminate additional burden on the dealers effecting inter-State sale of goods without ‘C’ form and will be cost effective for contractors in inter-state works contract.
4. Reduction of VAT on LED lamps of all kinds from 14.5% to 5%.
5. Reduction on VAT on air compressors, pump sets up to 10 hp and their parts thereof will be reduced from the present levy of 14.5% to 5%.

 
Rajasthan VAT :- The relevant changes under Rajasthan  VAT are as below :-
1. Increase in VAT rate of Schedule V(Residual entry) to 14.50% from 14%. Hence the tax impact shall increase on goods falling under this schedule.
2. Insertion of entry in Rule 22A (GDC – Labour charges deduction list) – Notwithstanding anything contained in this rule, the taxable turnover for levying Vat on works contract, may be determined by deducting from the gross value of the contract, in so far as the amounts relating to the deductions pertaining to the said works contract
“bb. Value on which tax has been paid by the sub-contractor”
Hence the theory of tax payable either by the contractor or the sub-contractor has been given effect to in the state.
3. Exemption Notification –
Existing exemption Notification is substituted by  Notification No. SO 270 dated 9-March-2015 as below :-
Two Options – Instead of a single exemption fee option, the government has introduced two options with following characteristics :-
Option A – The contractor will be liable to pay tax at schedule rates on goods purchased from outside the state.
Option B –The contractor will not be required to pay any tax in addition to the payment under the exemption fee scheme, although the composition rates in this option are higher as compared to Option A.
Option A –

• Works contract where the cost of material doesn’t exceed 5% of the total contract amount – 0.10%
• Works Contract relating to construction and repair of roads, runways, bridges, dams, drains excluding sewerage system, tunnels, canals, channels, barrages, railway tracks, causeways, sub ways, diversion, spill ways, boundary walls, buildings and water harvesting system – 0.75%
• Works contract awarded by Rajasthan VidhyutPrasaran Nigam Ltd., Jaipur VidhyutVitaran Nigam Ltd., Ajmer VidhyutVitaran Nigam Ltd., Jodhpur VidhyutVitaran Nigam Ltd. – 0.75%
• Any other kind of works contract not covered by item number 1 to 3 above – 2%

Option B –

• Works contract where the cost of goods involved in execution of works contract does not exceed five percent of the total contract amount – 0.70%
• Works contract relating to construction and repair of roads, runways, bridges, dams, tunnels, canals, channels, barrages, railway tracks, causeways, sub ways, diversion, spill ways, drains excluding sewerage system – 4%
• Works contract related to construction and repair of buildings, boundary walls, sewerage system, sewerage treatment plant, water supply works and water harvesting structures – 5%
• Works contract awarded by Rajasthan VidhyutPrasaran Nigam Ltd., Jaipur VidhyutVitran Nigam Ltd., Ajmer VidhyutVitran Nigam Ltd., JodhputVidhyutVitran Nigam Ltd. – 3.50%
• Works contract related to setting up of new enterprise or expansion of existing enterprise manufacturing fertilizer within the State with minimum investment of Rs.2500 Crore -1%
• Any other kind of works contract not covered by item number 1 to 5 above – 6%

The difference between the two options has already been explained above.
4. Substitution of Composition scheme for Real Estate Developers&builders –(Notification No.-SO 265 dated 9-March-2015)

• Registered dealers, commonly known as developers/ builders who,  work as contractors, undertake the construction of flats, dwellings or buildings or premises and transfer them along with goods (whether as goods or in some other form) and land or interest underlying in the land. Now the dealer under this category has to opt for any one out of the two schemes below :-

• Scheme 1 – Rs. 1300 for every Rs. 2 Lacs of consideration or part there of (including land value) i.e. 0.65%
• Condition – Dealer has to pay tax on normal rates on goods purchased out of Rajasthan
• Scheme 2 – Rs. 8000 for every Rs. 2 Lacs of consideration or part there of. (including land value) i.e. 4%
• Condition – ITC is restricted for a dealer opting this Scheme.

Haryana VAT :- The relevant changes under Haryana VAT are as below :-

1. VAT rate on LED lights, pipe-fittings and prefabricated steel structures is reduced to 5 percent from existing rate of 12.50%.

Madhya Pradesh VAT :- The relevant changes under MP  VAT are as below :-

1. Goods mentioned in schedule II of MP Vat Act, 2002 – rate of vat 13% increased to 14%.Tendency of states to increase tax rates are causing short term inflation. But with a object to keep the rates in line with GST it is helpful in long term as additional liability on transition will get covered.

 
West Bengal VAT :- The relevant changes under WB  VAT are as below :-

1. VAT registration limit has been increased to 10 lacs from 5 lacs.
2. Threshold limit of annual turnover for payment of VAT enhanced from Rs. 5 Lakhs to Rs. 10 Lakhs.
3. Threshold annual turnover limit for submitting VAT Audit Report enhanced from Rs. 5 Crs to Rs. 10 Crs

Karnataka VAT :- The relevant changes under Karnataka VAT are as below :-

1. Increase in registration limit from 7.5 lakhs of annual turnover to Rs. 10 lakhs.
2. Tax rate increased by 1% on Petrol and Diesel.
3. Tax reduction from 14.5% to 5.5% on Industrial cables namely XLPE Cables, Jelly Filled Cable, Optical Fibre Cable and PVC Cable.

 
Kerala VAT :- The relevant changes under Kerela VAT are as below :-

1. An additional tax of Rupees one per litre to be imposed on petrol and diesel
2. Serviced villas to be treated at par with serviced apartments and made taxable at 12.5% under Kerala Tax on Luxuries Act.
3. LNG exempted from VAT for a period of one year.
4. Tax rate of electronic goods and systems notified by the Government, manufactured and sold for defence purpose of the country, reduced to 5%.
5. Fabricated wall panels made by FACT from their by-product Glass fibre reinforced gypsum exempted from tax.

 
Goa VAT :- The relevant changes under GOA VAT are as below :-

1. Imposition of VAT on CFL and LED bulbs, tubes, sanitary napkins and mobile phones (above Rs. 12,000) by bringing the same under Residuary Schedule of the VAT Act, 2005.
2. Enhancement of VAT on Motor Spirit from 10% to 15%.

 
Assam VAT :- The relevant changes under Assam VAT are as below :-

1. Disallowance of ITC in case of inter-State sales of goods made out of locally bought/manufactured goods has been withdrawn.

Andhra Pradesh VAT :- The relevant changes under AP VAT are as below :-

1. “Any dealer who desires to import goods from other States or Union Territories or any dealer who desires to send goods to outside the State, shall electronically generate the way bill, through the official website of the Commercial Taxes Department or the Government of Andhra Pradesh. Such electronically generated waybill shall accompany the goods along with sale invoice or delivery note and shall be tendered by the person in-charge of the goods vehicle to the officer in-charge of the check post through which the goods vehicle first enters into the State or exits the State, as the case may be.”

Gujarat VAT :- The relevant changes under Gujarat VAT are as below :-

1. Vat rate on aviation turbine fuel has been reduced from 30% ( for duty paid ATF ) and 38% ( for bonded ATF) to 5%  when sold from cities other than Ahmedabad and Vadodara for scheduled commercial airlines service flights.
2. There is new levy of tax on technical textile. The vat rate will be 5% including additional vat rate 1%.