WCT TDS deduction for payment made to sub-contractors – GVAT
WCT TDS is mandatory requirement under GVAT for any contract values exceeding Rs. 1 Crore. WCT TDS is governed by the Gujarat VAT Act 2009 u/s 59B and related rules i.e. Rule 65 & 65A. The TDS is deducted by the person (Say X) who awards a works contract to a contractor (Say Y). There is a confusion if TDS shall be deducted by contractor who further allocate the same works contract to a sub-contractor (Say Z) and value of the sub-contract exceeds Rs. 1 Crore.
There is no circular or clarification in GVAT legislation in this regard. However, the principal Section 59B (3) (b) of GVAT specifically requires a contractor (Y) to deduct tax at source while making payment to sub-contractor (Z). Please find the text:
“Any person being a contractor (Y) responsible for paying specified sale price to a sub-contractor (Z) in pursuance of a contract with the sub-contractor for carrying out the whole or part of the work undertaken by the contractor in respect of a specified works contract, shall at the time of payment of the whole or part of the specified sale price deduct from such price an amount equal to two paise in a rupee of such payment as a tax on specified sales.”
As far as principal contractor (X) is concerned, a relief is provided to him from deducting tax at source for any payments made to sub-contractors (Z) by contractor (Y) and TDS is deducted by contractor (Y) [Section 59B (4) of GVAT]:
“If a person has entered into works contract (X) with a contractor (Y) and the contractor has entered into a contract with a sub-contractor (Z) entrusting to the sub-contractor the carrying out of the whole or part of the work (hereinafter referred to as “the sub-contract”) relating to the said works contract and the contractor has at the time of payment of the specified sale price in respect of the said subcontract to the sub-contractor deducted an amount as a tax under clause (b) of sub-section (3) and has paid the same under sub-section (7).”
WCT TDS deduction works very much like multi-stage VAT i.e. tax is required to be paid on every other point of supply chain and so TDS is required to be deducted at each such point. The value of contract awarded at each such stage though shall exceed Rs. 1 Crore.
CA GAUTAM JOSHI