Currencies of the World

Currencies of the World
ISO-4217 currency codes are provided along with commonly used symbols. Clicking on the name of a currency redirects you to the corresponding Wikipedia entry. Last updated: May 1, 2008.
Country Currency ISO-4217 Symbol
A
Afghanistan Afghan afghani AFN
Albania Albanian lek ALL
Algeria Algerian dinar DZD
American Samoa see United States
Andorra see Spain and France
Angola Angolan kwanza AOA
Anguilla East Caribbean dollar XCD EC$
Antigua and Barbuda East Caribbean dollar XCD EC$
Argentina Argentine peso ARS
Armenia Armenian dram AMD
Aruba Aruban florin AWG ƒ
Australia Australian dollar AUD $
Austria European euro EUR €
Azerbaijan Azerbaijani manat AZN
Bahamas Bahamian dollar BSD B$
Bahrain Bahraini dinar BHD
Bangladesh Bangladeshi taka BDT
Barbados Barbadian dollar BBD Bds$
Belarus Belarusian ruble BYR Br
Belgium European euro EUR €
Belize Belize dollarBZD BZ$
Benin West African CFA franc XOF CFA
Bermuda Bermudian dollar BMD BD$
Bhutan Bhutanese ngultrum BTN Nu.
Bolivia Bolivian boliviano BOB Bs.
Bosnia-Herzegovina Bosnia and Herzegovina konvertibilna marka BAM KM
Botswana Botswana pula BWP P
Brazil Brazilian real BRL R$
British Indian Ocean Territory see United Kingdom
Brunei Brunei dollar BND B$
Bulgaria Bulgarian lev BGN
Burkina Faso West African CFA franc XOF CFA
Burma see Myanmar
Burundi Burundi franc BIF FBu
Cambodia Cambodian riel KHR
Cameroon Central African CFA franc XAF CFA
Canada Canadian dollar CAD $
Canton and Enderbury Islands see Kiribati
Cape Verde Cape Verdean escudo CVE Esc
Cayman Islands Cayman Islands dollar KYD KY$
Central African Republic Central African CFA franc XAF CFA
Chad Central African CFA franc XAF CFA
Chile Chilean peso CLP $
China Chinese renminbi CNY ¥
Christmas Island see Australia
Cocos (Keeling) Islands see Australia
Colombia Colombian peso COP Col$
Comoros Comorian franc KMF
Congo Central African CFA franc XAF CFA
Congo, Democratic Republic Congolese franc CDF F
Cook Islands see New Zealand
Costa Rica Costa Rican colon CRC ₡
Côte d'Ivoire West African CFA franc XOF CFA
Croatia Croatian kuna HRK kn
Cuba Cuban peso CUC $
Cyprus European euro EUR €
Czech Republic Czech koruna CZK Kč

Denmark Danish krone DKK Kr
Djibouti Djiboutian franc DJF Fdj
Dominica East Caribbean dollar XCD EC$
Dominican Republic Dominican peso DOP RD$
Dronning Maud Land see Norway
East Timor see Timor-Leste
Ecuador uses the U.S. Dollar
Egypt Egyptian pound EGP £
El Salvador uses the U.S. Dollar
Equatorial Guinea Central African CFA franc GQE CFA
Eritrea Eritrean nakfa ERN Nfa
Estonia Estonian kroon EEK KR
Ethiopia Ethiopian birr ETB Br
Faeroe Islands (Føroyar) see Denmark
Falkland Islands Falkland Islands pound FKP £
Fiji Fijian dollar FJD FJ$
Finland European euro EUR €
France European euro EUR €
French Guiana see France
French Polynesia CFP franc XPF F
Gabon Central African CFA franc XAF CFA
Gambia Gambian dalasi GMD D
Georgia Georgian lari GEL
Germany European euro EUR €
Ghana Ghanaian cedi GHS
Gibraltar Gibraltar pound GIP £
Great Britain see United Kingdom
Greece European euro EUR €
Greenland see Denmark
Grenada East Caribbean dollar XCD EC$
Guadeloupe see France
Guam see United States
Guatemala Guatemalan quetzal GTQ Q
Guernsey see United Kingdom
Guinea-Bissau West African CFA franc XOF CFA
Guinea Guinean franc GNF FG
Guyana Guyanese dollar GYD GY$
Haiti Haitian gourde HTG G
Heard and McDonald Islands see Australia
Honduras Honduran lempira HNL L
Hong Kong Hong Kong dollar HKD HK$
Hungary Hungarian forint HUF Ft
Iceland Icelandic króna ISK kr
India Indian rupee INR Rs
Indonesia Indonesian rupiah IDR Rp
International Monetary Fund Special Drawing Rights XDR SDR
Iran Iranian rial IRR
Iraq Iraqi dinar IQD
Ireland European euro EUR €
Isle of Man see United Kingdom
Israel Israeli new sheqel ILS
Italy European euro EUR €
Ivory Coast see Côte d'Ivoire
Jamaica Jamaican dollar JMD J$
Japan Japanese yen JPY ¥
Jersey see United Kingdom
Johnston Island see United States
Jordan Jordanian dinar JOD
Kampuchea see Cambodia
Kazakhstan Kazakhstani tenge KZT T
Kenya Kenyan shilling KES KSh
Kiribati see Australia
Korea, North North Korean won KPW W
Korea, South South Korean won KRW W
Kuwait Kuwaiti dinar KWD
Kyrgyzstan Kyrgyzstani som KGS
Laos Lao kip LAK KN
Latvia Latvian lats LVL Ls
Lebanon Lebanese lira LBP
Lesotho Lesotho loti LSL M
Liberia Liberian dollar LRD L$
Libya Libyan dinar LYD LD
Liechtenstein uses the Swiss Franc
Lithuania Lithuanian litas LTL Lt
Luxembourg European euro EUR €
Macau Macanese pataca MOP P
Macedonia (Former Yug. Rep.) Macedonian denar MKD
Madagascar Malagasy ariary MGA FMG
Malawi Malawian kwacha MWK MK
Malaysia Malaysian ringgit MYR RM
Maldives Maldivian rufiyaa MVR Rf
Mali West African CFA franc XOF CFA
Malta European Euro EUR €
Martinique see France
Mauritania Mauritanian ouguiya MRO UM
Mauritius Mauritian rupee MUR Rs
Mayotte see France
Micronesia see United States
Midway Islands see United States
Mexico Mexican peso MXN $
Moldova Moldovan leu MDL
Monaco see France
Mongolia Mongolian tugrik MNT ₮
Montenegro see Italy
Montserrat East Caribbean dollar XCD EC$
Morocco Moroccan dirham MAD
Mozambique Mozambican metical MZM MTn
Myanmar Myanma kyat MMK K
Nauru see Australia
Namibia Namibian dollar NAD N$
Nepal Nepalese rupee NPR NRs
Netherlands Antilles Netherlands Antillean gulden ANG NAƒ
Netherlands European euro EUR €
New Caledonia CFP franc XPF F
New Zealand New Zealand dollar NZD NZ$
Nicaragua Nicaraguan córdoba NIO C$
Niger West African CFA franc XOF CFA
Nigeria Nigerian naira NGN ₦
Niue see New Zealand
Norfolk Island see Australia
Northern Mariana Islands see United States
Norway Norwegian krone NOK kr
Oman Omani rial OMR
Pakistan Pakistani rupee PKR Rs.
Palau see United States
Panama Panamanian balboa PAB B./
Papua New Guinea Papua New Guinean kina PGK K
Paraguay Paraguayan guarani PYG
Peru Peruvian nuevo sol PEN S/.
Philippines Philippine peso PHP ₱
Pitcairn Island see New Zealand
Poland Polish zloty PLN
Portugal European euro EUR €
Puerto Rico see United States
Qatar Qatari riyal QAR QR
Reunion see France
RomaniaRomanian leu RON L
Russia Russian ruble RUB R
Rwanda Rwandan franc RWF RF
Samoa (Western) see Western Samoa
Samoa (America) see United States
San Marino see Italy
São Tomé and Príncipe São Tomé and Príncipe dobra STD Db
Saudi Arabia Saudi riyal SAR SR
Sénégal West African CFA franc XOF CFA
Serbia Serbian dinar RSD din.
Seychelles Seychellois rupee SCR SR
Sierra Leone Sierra Leonean leone SLL Le
Singapore Singapore dollar SGD S$
Slovakia European euro EUR €
Slovenia European euro EUR €
Solomon Islands Solomon Islands dollar SBD SI$
Somalia Somali shilling SOS Sh.
South Africa South African rand ZAR R
Spain European euro EUR €
Sri Lanka Sri Lankan rupee LKR Rs
St. Helena Saint Helena pound SHP £
St. Kitts and Nevis East Caribbean dollar XCD EC$
St. Lucia East Caribbean dollar XCD EC$
St. Vincent and the Grenadines East Caribbean dollar XCD EC$
Sudan Sudanese pound SDG
Suriname Surinamese dollar SRD $
Svalbard and Jan Mayen Islands see Norway
Swaziland Swazi lilangeni SZL E
Sweden Swedish krona SEK kr
Switzerland Swiss franc CHF Fr.
Syria Syrian pound SYP
Tahiti see French Polynesia
Taiwan New Taiwan dollar TWD NT$
Tajikistan Tajikistani somoni TJS
Tanzania Tanzanian shilling TZS
Thailand Thai baht THB ฿
Timor-Leste uses the U.S. Dollar
Togo West African CFA franc XOF CFA
Trinidad and Tobago Trinidad and Tobago dollar TTD TT$
Tunisia Tunisian dinar TND DT
Turkey Turkish new lira TRY YTL
Turkmenistan Turkmen manat TMT m
Turks and Caicos Islands see United States
Tuvalu see Australia
Uganda Ugandan shilling UGX USh
Ukraine Ukrainian hryvnia UAH
United Arab Emirates UAE dirham AED
United Kingdom British pound GBP £
United States of America United States dollar USD US$
Upper Volta see Burkina Faso
Uruguay Uruguayan peso UYU $U
Uzbekistan Uzbekistani som UZS
Vanuatu Vanuatu vatu VUV VT
Vatican see Italy
Venezuela Venezuelan bolivar VEB Bs
Vietnam Vietnamese dong VND ₫
Virgin Islands see United States
Wake Island see United States
Wallis and Futuna Islands CFP franc XPF F
Western Sahara see Spain, Mauritania and Morocco
Western Samoa Samoan tala WST WS$
Yemen Yemeni rial YER
Zaïre see Congo, Democratic Republic
Zambia Zambian kwacha ZMK ZK
Zimbabwe Zimbabwean dollar ZWR Z$

With Holding Tax - Rates and Rules

1. 10 per cent of the gross amount of the interest on loans made or guaranteed by a bank or other financial institution carrying on bona fide banking or financing business or by an enterprise which holds directly or indirectly at least 10 per cent of the capital of the company paying the interest.
2. Dividend/interest earned by the Government and certain institutions like the Reserve Bank of India is exempt from taxation in the country of source.
3. Royalties and fees for technical services would be taxable in the country of source at the following rates :
a. 10 per cent in case of rental of equipment and services provided along with know-how and technical services ;
b. any other case
i. during first five years of the agreement
- 15 per cent if the payer is Government or specified organisation ;
- 20 per cent in other cases ;
ii. subsequent years, 15% in all cases.
Income of Government and certain institutions will be exempt from taxation in the country of source.
4. Royalties and fees for technical services would be taxable in the country of source at the following rates :
a. 10 per cent in case of royalties relating to the payments for the use of, or the right to use, industrial, commercial or scientific equipment;
b. 20 per cent in case of fees for technical services and other royalties.
5. 10 per cent of the gross amount of the interest on loans made or guaranteed by a bank or other financial institution carrying on bona fide banking or financing business or by an enterprise which holds directly or indirectly at least 20 per cent of the capital of the company paying the interest.
33[Tax on dividends, royalty and technical service fees in the case of foreign companies.
34115A. 35[(1) Where the total income of
(a) a non-resident (not being a company) or of a foreign company, includes any income by way of
(i) dividends 36[other than dividends referred to in section 115-O] ; or
(ii) interest received from Government or an Indian concern on monies borrowed or debt incurred by Government or the Indian concern in foreign currency ; or
(iii) income received in respect of units, purchased in foreign currency, of a Mutual Fund specified under clause (23D) of section 10 or of the Unit Trust of India,
the income-tax payable shall be aggregate of
(A) the amount of income-tax calculated on the amount of income by way of dividends 36[other than dividends referred to in section 115-O], if any, included in the total income, at the rate of twenty per cent ;
(B) the amount of income-tax calculated on the amount of income by way of interest referred to in sub-clause (ii), if any, included in the total income, at the rate of twenty per cent ;
(C) the amount of income-tax calculated on the income in respect of units referred to in sub-clause (iii), if any, included in the total income, at the rate of twenty per cent ; and
(D) the amount of income-tax with which he or it would have been chargeable had his or its total income been reduced by the amount of income referred to in sub-clause (i), sub-clause (ii) and sub-clause (iii) ;
(b) 37[a non-resident (not being a company) or a foreign company, includes any income by way of royalty or fees for technical services other than income referred to in sub-section (1) of section 44DA] received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or the Indian concern after the 31st day of March, 1976, and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy, then, subject to the provisions of sub-sections (1A) and (2), the income-tax payable shall be the aggregate of,
38[(A) the amount of income-tax calculated on the income by way of royalty, if any, included in the total income, at the rate of thirty per cent if such royalty is received in pursuance of an agreement made on or before the 31st day of May, 1997 and twenty per cent where such royalty is received in pursuance of an agreement made after the 31st day of May, 1997 39[but before the 1st day of June, 2005];
39[(AA) the amount of income-tax calculated on the income by way of royalty, if any, included in the total income, at the rate of ten per cent if such royalty is received in pursuance of an agreement made on or after the 1st day of June, 2005;]
(B) the amount of income-tax calculated on the income by way of fees for technical services, if any, included in the total income, at the rate of thirty per cent if such fees for technical services are received in pursuance of an agreement made on or before the 31st day of May, 1997 and twenty per cent where such fees for technical services are received in pursuance of an agreement made after the 31st day of May, 1997 39[but before the 1st day of June, 2005] ; and]
39a[(BB) the amount of income-tax calculated on the income by way of fees for technical services, if any, included in the total income, at the rate of ten per cent if such fees for technical services are received in pursuance of an agreement made on or after the 1st day of June, 2005; and]
(C) the amount of income-tax with which it would have been chargeable had its total income been reduced by the amount of income by way of royalty and fees for technical services.
Explanation.For the purposes of this section,
(a) fees for technical services shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9 ;
(b) foreign currency shall have the same meaning as in the Explanation below item (g) of sub-clause (iv) of clause (15) of section 10 ;
(c) royalty shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9 ;
(d) Unit Trust of India means the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963).]
40[(1A) Where the royalty referred to in clause (b) of sub-section (1) is in consideration for the transfer of all or any rights (including the granting of a licence) in respect of copyright in any book to an Indian concern 41[or in respect of any computer software to a person resident in India], the provisions of sub-section (1) shall apply in relation to such royalty as if the words 42[43[the agreement is approved by the Central Government or where it relates to a matter] included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy] occurring in the said clause had been omitted :
Provided that such book is on a subject, the books on which are permitted, according to the Import Trade Control Policy of the Government of India for the period commencing from the 1st day of April, 1977, and ending with the 31st day of March, 1978, to be imported into India under an Open General Licence :
44[Provided further that such computer software is permitted according to the Import Trade Control Policy of the Government of India for the time being in force to be imported into India under an Open General Licence.]
45[Explanation 1].In this sub-section, Open General Licence means an Open General Licence issued by the Central Government in pursuance of the Imports (Control) Order, 1955.]
46[Explanation 2.In this sub-section, the expression computer software shall have the meaning assigned to it in clause (b) of the Explanation to section80HHE.]
(2) Nothing contained in sub-section (1) shall apply in relation to any income by way of royalty received by a foreign company from an Indian concern in pursuance of an agreement made by it with the Indian concern after the 31st day of March, 1976, if such agreement is deemed, for the 47[purposes of the first proviso] to clause (vi) of sub-section (1) of section 9, to have been made before the 1st day of April, 1976; and the provisions of the annual Finance Act for calculating, charging, deducting or computing income-tax shall apply in relation to such income as if such income had been received in pursuance of an agreement made before the 1st day of April, 1976.]
48[(3) No deduction in respect of any expenditure or allowance shall be allowed to the assessee under sections 28 to 44C and section 57 in computing his or its income referred to in sub-section (1).
(4) Where in the case of an assessee referred to in sub-section (1),
(a) the gross total income consists only of the income referred to in clause (a) of that sub-section, no deduction shall be allowed to him or it under Chapter VI-A;
(b) the gross total income includes any income referred to in clause (a) of that sub-section, the gross total income shall be reduced by the amount of such income and the deduction under Chapter VI-A shall be allowed as if the gross total income as so reduced were the gross total income of the assessee.
(5) It shall not be necessary for an assessee referred to in sub-section (1) to furnish under sub-section (1) of section 139 a return of his or its income if
(a) his or its total income in respect of which he or it is assessable under this Act during the previous year consisted only of income referred to in clause (a) of sub-section (1); and
(b) the tax deductible at source under the provisions of Chapter XVII-B has been deducted from such income.]
Income deemed to accrue or arise in India.
469. 47(1) The following incomes shall be deemed48 to accrue or arise in India :—
49(i) all income accruing or arising, whether directly or indirectly, through or from any business connection50 in India, or through or from any property50 in India, or through or from any asset or source of income in India, 51[* * *] or through the transfer of a capital asset situate in India.
52[Explanation 1].—For the purposes of this clause—
(a) in the case of a business of which all the operations53 are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations53 carried out in India ;
(b) in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export ;
54[* * *]
55[(c) in the case of a non-resident, being a person engaged in the business of running a news agency or of publishing newspapers, magazines or journals, no income shall be deemed to accrue or arise in India to him through or from activities which are confined to the collection of news and views in India for transmission out of India ;]
56[(d) in the case of a non-resident, being—
(1) an individual who is not a citizen of India ; or
(2) a firm which does not have any partner who is a citizen of India or who is resident in India ; or
(3) a company which does not have any shareholder who is a citizen of India or who is resident in India,
no income shall be deemed to accrue or arise in India to such individual, firm or company through or from operations57 which are confined to the shooting of any cinematograph film in India.]
58[Explanation 2.—For the removal of doubts, it is hereby declared that “business connection” shall include any business activity carried out through a person who, acting on behalf of the non-resident,—
(a) has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident, unless his activities are limited to the purchase of goods or merchandise for the non-resident; or
(b) has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or
(c) habitually secures orders in India, mainly or wholly for the non-resident or for that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident:
Provided that such business connection shall not include any business activity carried out through a broker, general commission agent or any other agent having an independent status, if such broker, general commission agent or any other agent having an independent status is acting in the ordinary course of his business :
Provided further that where such broker, general commission agent or any other agent works mainly or wholly on behalf of a non-resident (hereafter in this proviso referred to as the principal non-resident) or on behalf of such non-resident and other non-residents which are controlled by the principal non-resident or have a controlling interest in the principal non-resident or are subject to the same common control as the principal non-resident, he shall not be deemed to be a broker, general commission agent or an agent of an independent status.
Explanation 3.—Where a business is carried on in India through a person referred to in clause (a) or clause (b) or clause (c) of Explanation 2, only so much of income as is attributable to the operations carried out in India shall be deemed to accrue or arise in India;]
(ii) income which falls under the head “Salaries”, if it is earned59 in India.
60[Explanation.—For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for—
(a) service rendered in India; and
(b) the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment,
shall be regarded as income earned in India ;]
(iii) income chargeable under the head “Salaries” payable by the Government to a citizen of India for service outside India ;
(iv) a dividend paid by an Indian company outside India ;
61[(v) income by way of interest payable by—
(a) the Government ; or
(b) a person who is a resident, except where the interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or
(c) a person who is a non-resident, where the interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person in India ;
(vi) income by way of royalty62 payable by—
(a) the Government ; or
(b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or
(c) a person who is a non-resident, where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India :
Provided that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum consideration for the transfer outside India of, or the imparting of information outside India in respect of, any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process or trade mark or similar property, if such income is payable in pursuance of an agreement made before the 1st day of April, 1976, and the agreement is approved by the Central Government :
63[Provided further that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum payment made by a person, who is a resident, for the transfer of all or any rights (including the granting of a licence) in respect of computer software supplied by a non-resident manufacturer along with a computer or computer-based equipment under any scheme approved under the Policy on Computer Software Export, Software Development and Training, 1986 of the Government of India.]
Explanation 1.—For the purposes of the 64[first] proviso, an agree-ment made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date; so, however, that, where the recipient of the income by way of royalty is a foreign company, the agreement shall not be deemed to have been made before that date unless, before the expiry of the time allowed under sub-section (1) or sub-section (2) of section 139 (whether fixed originally or on extension) for furnishing the return of income for the assessment year commencing on the 1st day of April, 1977, or the assessment year in respect of which such income first becomes chargeable to tax under this Act, whichever assessment year is later, the company exercises an option by furnishing a declaration in writing to the 65[Assessing] Officer (such option being final for that assessment year and for every subsequent assessment year) that the agreement may be regarded as an agreement made before the 1st day of April, 1976.
Explanation 2.—For the purposes of this clause, “royalty” means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head “Capital gains”) for—
(i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property ;
(ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property ;
(iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property ;
(iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill ;
66[(iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB;]
(v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films ; or
(vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to 66[(iv), (iva) and] (v).
67[Explanation 3.—For the purposes of this clause, “computer software” means any computer programme recorded on any disc, tape, perforated media or other information storage device and includes any such programme or any customized electronic data;]
(vii) income by way of fees for technical services payable68 by—
(a) the Government ; or
(b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or
(c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India :
69[Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government.]
70[Explanation 1.—For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date.]
Explanation 71[2].—For the purposes of this clause, “fees for technical services” means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction72, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head “Salaries”.]
(2) Notwithstanding anything contained in sub-section (1), any pension payable outside India to a person residing permanently outside India shall not be deemed to accrue or arise in India, if the pension is payable to a person referred to in article 314 of the Constitution or to a person who, having been appointed before the 15th day of August, 1947, to be a Judge of the Federal Court or of a High Court within the meaning of the Government of India Act, 1935, continues to serve on or after the commencement of the Constitution as a Judge in India.
72a[Explanation.—For the removal of doubts, it is hereby declared that for the purposes of this section, where income is deemed to accrue or arise in India under clauses (v), (vi) and (vii) of sub-section (1), such income shall be included in the total income of the non-resident, whether or not the non-resident has a residence or place of business or business connection in India.]

Taxation of Works Contract

Composition Scheme for Works Contract Service under Ser. Tax

Composition Scheme for Works Contract Service under Service Tax – A Boon for Works Contractor?
Nature of the provisions
1.0 Under the normal scheme of taxation, tax liability is determined with reference to taxable value of the base with the rate of tax. However, due to complexity of the transactions, at times, it is not possible to determine the value of the base, determination of tax liability poses the problem. Since, in such a situation, any solution is prone to litigation and hardship, a via media is found by levying the tax on an ad hoc basis with reference to something which is easily identifiable and can be quantified. Here, the process of determining value of the taxable base is given complete by-pass. Under the taxing statute this is called Composition Scheme (CS). CS is prevalent under the VAT laws of almost all the states. For the purpose of levying tax under Works Contract(WC) which involves both, supply of goods and rendering of services, an option is given to the dealer for payment of tax under CS. Under the CS under VAT the dealer is not required to vivisect the transaction and determine value of property transferred in goods. VAT is required to be paid at substantially lower rate than the scheduled rate.

1.1 Administratively this process under CS is very convenient. However, the tax payer always has the pinch that he is being required to pay the tax on something which is not taxable at all under the statute. In order to take care of such complains, the rate of tax levied is kept substantially lower than the scheduled rate. This dilutes, to some extent, the complain by the taxpayers. While the tax payer is relieved of the hassles of determining value, there is a cost to it. It is in the form of denial of certain tax credit in respect of input. Under VAT scheme of taxation, the dealer is denied input credit of taxes paid on the goods used for executing the WC. However, the dealer is having the additional advantage of not required to detailed scrutiny of the records. Since the tax base is fixed in such a way that there is no ambiguity at all, there is no necessity to go through the said process.

1.2 It should be appreciated that CS is not an alternative tax but it is an alternative method of computing tax liability. Provisions with respect to CS are not the independent charging section. The State will continue to collect the tax under the charging section as provided under the Statute. The only difference being the tax payable in normal way is substituted by the tax to be paid as computed under CS. Thus, it is a rough and ready method of computation of tax.

CS under Service Tax
2.0 It is for the first time that the provisions have been made under the service tax (ST) to pay tax under CS. Notification No. 32/2007 dt. 22-5-2007 lays down detailed rules for composition scheme. ST is being levied for various services wherein supply of goods is involved along with rendering of services. However, in all such cases, abatement in the form of reduction in value of gross amount charged has been preferred by the authorities. The principal difference between abatement and CS is in the process. While in the case of abatement, value of service is determined by deducting value of goods from the gross amount charged on an ad hoc basis and the tax is levied on the balancing amount. However, in the case of CS, no attempt is being made to determine the value of services rendered at all. Tax is computed with reference to gross amount charged. Moreover, the rate of tax is also not the scheduled rate, but the one specifically laid down for this purpose. In the case of abatement, rate of abatement differs from services to services. However, the rate of tax remains the same for all the types of services i.e. the scheduled rate fixed under the Finance Act.

At a first sight, provisions of CS for services involved under WC is surprising. This is for the reason that the scheme of abatement is already in existence under the ST since long. However, the CS is quite popular under VAT laws of almost all the state governments. Perhaps, in order to keep the scheme of taxation of services of WC in alignment with that of the VAT, CS has been proposed.

Redeeming features of CS under ST
3.0 There are six noteworthy features of the CS under ST.

3.1 Firstly, the first part of Rule 3(1) of Works Contract (Composition Scheme for Payment of services) Rules, 2007 overrides the provision of S. 67 of the Finance Act. It is specifically provided that the payment of tax under CS will be discharging the tax liability under section 67. Thus, by not following the provisions of S. 67, there will not be any violation of the Finance Act.

3.2 Secondly, Rule 3(1) overrides the provisions of rule 2A of the Service (Determination of Value) Rules, 2006. Thus, the assessee is freed from the hassles of determining the value of services.

3.3 Thirdly, although not specifically stated so, the clause 3(2) also overrides certain portion of CENVAT Credit Rules. Generally, under the CS of VAT, input credit is not permitted. However, under CS under ST, input credit in respect of goods only is not permitted. It means that all the provisions of CENVAT Credit Rules, particularly input credit in respect of input services and capital goods are applicable.

3.4 Fourthly, unit of assessment under CS is each WC and not the total amount of services rendered during the taxable period WC. It means for WC under CS, tax will have to be ascertained separately and added to the total tax liability for other WC. Total amount of services rendered under WC under CS will not be added to the chargeable value of services for a particular month / quarter, as there is no determination of the volume of services under CS.

3.5 Fifthly, there is no upper limit of the value of the WC in respect of which the option can be exercised. Thus, irrespective of the amount of the WC, the option can be exercised.

3.6 Sixthly, there is live connectivity between provisions of WC under VAT and ST in many respects. For example, the applicability of taxation of services under WC itself is based on the applicability of VAT laws. However, the scheme of CS under ST is silent about it. One would have expected it to be applicable in the case only if the assessee has opted for the same under VAT. However, it is not so. The very fact that there is no reference to option exercised by the dealer under VAT for CS, it is entirely at the option of the assessee, to choose the most beneficial method of taxation.

Optional Scheme
4.0 Rule 3(1) provides that the assessee shall have the option to discharge his service tax liability. Here, two things are worth noting.

4.1 Firstly, there is no compulsion on the assessee to opt for the scheme. Realisation under WC involves value of goods and services, adoption of contract value cannot be permissible mode of levy for ST. Since, the CS is departing from the process of determining tax as laid down under the Statute, assessee’s consent becomes essential. Having opted for the CS, the assessee cannot challenge its provision. It is for this reason the CS is always made optional. The assessee is permitted to follow the scheduled method of determining value of taxable base and pay the tax thereon. It is open for the assessee to work out cost benefit analysis of both the methods of taxation and follow the one wherein the tax liability is lower.

4.2 Secondly, tax paid under CS is considered as discharging the tax liability as laid down under the Finance Act. Thus, by making the payment of tax under CS, the assessee is in fact discharging his liability of ST as laid down under the Finance Act. Since the Rule specifically provides to this effect, it will not be open for the administrative authority requiring the assessee to determine the value of services under and pay tax under the scheduled method. Thus, by paying tax as computed under the CS the assessee will be complying the provisions of S. 67 of the Finance Act.

Determining the Taxable Base
5.0 In terms of provisions of S. 67 of the Finance Act, the tax is required to be paid in respect of service provided or to be provided. Thus, it covers both the contingencies i.e. amount received in respect of services rendered and advance received for the services to be rendered. Provisions as applicable in this respect under CS are also the same. The Rule 3(1) provides that tax will have to be paid on amount realised in respect of service provided or to be provided.

5.1 In the case of WC, at times, advance payment is being made by the contractee. In terms of provisions of S. 65(105), and Explanation 3 to section 67, ST is required to be paid thereon. Therefore, in such cases the assessee will have to take decision about the option at an early stage of execution of WC. If tax is paid on advance received then it will not be possible to exercise the option at a later stage and ST will have to be paid on the value determined as mentioned in Rule 2A of Determination of Value Rules.

5,2 The whole structuring of the CS is such that the assessee will have to make calculations in advance about the element of goods and services involved and carry out cost benefit analysis. Once the bill raised has been approved and dues have been realized, the liability to pay ST will arise. This may pose some problem when the payment is received at the fag end of the month/quarter as the liability to pay tax will arise by the 5th of the next month / quarter.

Rate of Tax
6.0 Generally the scheme of CS provides for by-passing the scheduled process of determining the value for computation of tax and the rate of tax provided in the statute. Accordingly Rule 3(1) provides that under the CS the assessee is permitted instead of paying service tax at the rate specified in section 66 of the Act to pay the tax at the rate as laid down under the scheme. Thus, by paying the tax under CS, the assessee is discharging his liability as laid down under section 67 of the Finance Act. A look at the following table will give idea about the whole process of payment of ST and how CS fit into it.


Under Determination of Value Rule
Under CS
1
Execution of WC
Yes
Yes
2
Raising of provisional bill for work done
Yes
Yes
3
Approval of the work by architect etc.
Yes
Yes
4
Raising of final bill
Yes
Yes
5
Determination of consumption of material for computation of VAT
Yes
Yes
6
Determination of VAT liability
Yes
Yes
7
Payment of VAT
Yes
Yes
8
Receipt of money against the bill raised
Yes
Yes
9
Determination of value of services rendered for ST purposes
Yes
No
10
Computation of Input services
Yes
Yes
11
Computation of final ST / CS liability
Yes
Yes
12
Payment of ST
Yes
Yes
6.1 One may get the feeling that under CS only one step is avoided. This is at the cost of paying ST on value of goods involved in WC. However, it should be appreciated that Step 9 is the most difficult and complex part of the whole process. It is at this stage that one may have to face various factual and legal issues. Therefore, one will have to weigh pros and cons at the early stage of WC.

6.2 Rule 3(1) provides for the rate of tax at the amount equivalent to two per cent of the gross amount charged. Under the normal circumstances ST, is required to be paid at the rate as fixed under the Finance Act on value of services rendered only. However, CS differs here. Firstly, the rate as fixed under the Finance Act is not applicable. Secondly, value of services rendered is not required to be determined. Thirdly, the rate of tax will be as mentioned in the Rules. And lastly, tax will be computed not with reference to value of services rendered but with reference to the gross amount charged.

6.3 The wordings “gross amount charged” may lead one to conclude that CS will be required to be paid on bill raised. However, looking to the scheme of ST, the ST is required to be paid only when value of service is realised. Reference to 2.00% of gross amount charged is for the purpose of determining total tax liability. Assessee’s liability to pay the tax arises only when money is realised against WC executed. Therefore, if for any reason, certain amount is not received against the bill raised, there is no liability to pay the tax thereon.

Exclusion of VAT liability
7.0 As provided under Explanation (a) of Rule 2A(1)(i) of Service Tax (Determination of Value) Rules, 2006, under the CS also, as per Rule 3(2), gross amount charged shall not include Value Added Tax (VAT) or sales tax. Base for computation of CS is gross amount charged in the bill. This amount may be including VAT as well. If so, the amount of VAT required to be paid thereon will have to be deducted. This will avoid payment of ST on VAT. In case, if the assessee has opted for CS under VAT then the amount of CS under VAT will have to be considered, otherwise actual amount of VAT liability computed will have to be deducted. In case, if the bill comprises value of work done and amount of VAT separately then the value of work executed as shown will be the basis for computation of CS.

Input Credit
8.0 The most interesting aspect of CS is the provision for permitting the assessee to avail the benefit of tax paid on input services. Generally, as per the CS under VAT the dealer is not permitted to take input credit for tax paid on goods consumed. This is for the reason that the rate of tax fixed under the CS is substantially lower. Moreover, in many cases the dealer is not required to maintain detailed records as well. However, the CS departs here substantially from CS under VAT. Read the provisions in this respect which runs as follow:

shall not take CENVAT credit of duties or cess paid on any inputs, used in or in relation to the said works contract.
8.1 At a first glance, one may get an impression that input credit for tax paid is not permitted. However, it is only with reference to duty paid in respect of goods. WC involves rendering of services and for the said purpose the assessee might have availed the services of other service providers. The assessee also might have bought capital goods and paid duty thereon. The Rule, as mentioned above, does not prohibit claiming so. Please note that the provisions of CENVAT Credit Rules have not been overridden. The assessee is permitted to take input credit in respect of both of these items. See the following extract from clarification No. 097.01/23-8-2007 of Circular No. 96/7/2007 dt. 23-8-2007.
097.01 / 23.08.07
Whether CENVAT credit of duty paid on capital goods and service tax paid on input services can be taken by a service provider who opts to pay an amount equivalent to two per cent. of the gross amount charged for the works contract instead of paying service tax at the rate specified in section 66, under the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, notified vide notification No.32/2007-Service Tax dated 22.05.07?

Rule 3(2) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 provides that the provider of taxable service opting to pay service tax under the composition scheme is not entitled to take CENVAT credit of duty on inputs, used in or in relation to the said works contract, under the provisions of the CENVAT Credit Rules, 2004.

There is no restriction under notification No.32/2007-Service Tax dated 22.05.07 to take CENVAT credit of duty paid on capital goods and service tax paid on input services.


8.2 It categorically states that the assessee can claim input credit for input services and capital goods. This is for the reason that the provisions of CENVAT Credit Rules are applicable to the full extent except to the extent of duty paid on input goods. This is certainly a beneficial provision for the assessee as he is not only paying the tax at a substantially lower rate but also permitted to take credit for tax paid on input services and capital goods. Isn’t it icing on the cake?
Input Credit at Global Level?
9.0 Sub-clause (2) does not permit credit in respect of duty paid on input goods. Thus, input credit on services and capital goods are permitted. A question that may arise is whether the said amount is permitted at global level i.e. whether excess input credit of a particular WC can be adjusted against tax liability arising under other WC under CS or even otherwise? This is for the reason that, in the initial phase of the execution of the contract, payment for input services will start while realization may be at a much later date. What will happen, if during the intervening period, the assessee is required to pay the tax and file ST Returns? There is no clarity about it. It should be appreciated that under the scheme of ST, it is not necessary to follow the principle of one-to-one matching of the services rendered and input services. Therefore, there should not be any problem in claiming input credit in the cases wherein realization of the service is zero or lower than input services.
Time Element of CS
10.0 The CS imposes certain conditions on the assessee with respect to exercising the option. The first condition is that the assessee will have to exercise such option in respect of a works contract prior to payment of service tax in respect of the said works contract. The assessee is required to exercise the option before the payment of ST. Once the payment of ST in respect of a particular WC is commenced, the option cannot be exercised. Does this mean that the option can be exercised even though due date of payment of tax has already lapsed? This is for the reason that the option is required to be exercised prior to “payment of service tax” and not the last date of payment of ST as provided under the Finance Act.

10.1 In the case of WC, real problem arises when advance is received prior to commencement of execution of the contract. Since the amount of advance received will attract payment of ST, option will be required to be exercised even before the WC has commenced. Does it mean that payment of tax on advance received can be postponed till the first payment under the normal course is received? Of course here the question of payment of interest for late payment of tax on advance received will arise.
Basic exemption of Rs. 8.00 lacs
11.0 Under CS, unit of assessment is each WC and not the total amount of services rendered. Therefore, a question may arise particularly in the case of a new business whether the basic exemption limit will be available or not. It should be noted that under CS there is no computation of value of taxable services rendered. Sub-rule 3(1) suppresses the provisions of s. 67 and Rule 2A and permit the assessee to discharge the tax liability on an ad hoc basis. Since there is no computation of value of services rendered, the question of applying its value for computation of the basic exemption limit will not arise. Does it mean that the assessee can keep taxable value of services under various contracts under Rs. 8.00 lacs and opt for CS for other contracts? There do not appear to be any provisions, which prohibit the assessee to have mixture of both the options and derive maximum benefits.

11.1 Consider the case of an assessee who has started the business in the year and opts for CS. What will be the amount of taxable services for the purpose of computing threshold limit? Whether the gross amount charged for WC under CS can be considered for the said purpose? No. Since the quantum of services rendered has not been determined at all, gross amount charged for WC under CS cannot be considered for this purpose.
Applicability to the Entire WC
12.0 The option exercised under the CS is applicable to the entire WC. A WC can be consisting of various small jobs clearly identifiable. As long as they remain part of the single WC, the option of CS will be applicable to the entire WC. Therefore, it will be in the interest of the contractor to work out the business plan accordingly particularly keeping in mind element of goods and service involved therein. This can help in minimizing the tax liability to a great extent.
Timeframe of WC
13.0 The option for CS once exercised is final and is not permitted to be withdrawn until the completion of the said WC. It may so happen that the assessee, during the course of execution of WC, may not find the option of CS cost efficient. However, having opted for it once, there is no choice. It is for these reasons to go slowly and take into consideration various aspects involved in execution of WC.

13.1 It should also be kept in mind that the option is available in respect of each WC and therefore, having opted for CS for a particular contract, the assessee need not follow the same for the remaining contracts or future contracts. Discretion for future WC is with the assessee.

Input Credit for CS paid under VAT and ST – a comparison
14.0 Under the CS of VAT of state laws since the dealer is permitted to pay tax at lower rate, the tax so paid is not permitted to be charged separately in the invoice raised. It means the dealer is required to bear the same. Secondly, the contractee dealer is not permitted to take input credit for the amount of tax paid by the contractor. This is for the reason that the contractor has paid the VAT at substantially lower rate and the VAT paid is not shown in the invoice separately. However, CS under ST differs from CS under VAT substantially. As we have already seen input credit is permitted in respect of tax paid for input services and capital goods.
Input Credit for Service Receiver
15.0 Apart from that under VAT the buyer is not permitted to take credit for VAT paid under CS. However, there are no such provisions under the ST. Therefore, service receiver can claim the amount of CS paid as input credit. If structured efficiently, this can help in keeping the ST liability at the lowest.
Records to be maintained
16.0 CS gives relief with reference to computation of value of services and payment of tax on an ad hoc rate. However, there is no reference to maintenance of records as required under Rule 5 of Service Tax Rules. Therefore, the assessee will have to maintain all the records as required under Rule 5.
Arithmetic of CS
17.0 What is the cut-off rate of element of services for determining cost benefit under CS? Following table will give some idea about it.
Element of Goods
Element of Service
ST Liability u/s 67
ST liability under CS
Difference
60
40
4.80
2.00
2.80
65
35
4.20
2.00
2.20
70
30
3.60
2.00
1.60
80
20
2.40
2.00
0.40
84
16
1.92
2.00
-0.08
85
15
1.80
2.00
-0.20
90
10
1.20
2.00
-0.80
17.1 As can be seen from the table, the cut-off rate will be between 15 to 20% of services involved in the WC. Roughly, one can say that if the element of service is more than 20.00% in WC, it will be cost beneficial to opt for CS. However, as explained above the assessee will have to take into account various factors involved.

17.2 For the purpose of detailed cost benefit analysis, the assessee should also consider input credit available under both the options and a comparative analysis be made. Since it varies from case to case it has not be included in the above table. But it will be an important factor to take not of.
CS under VAT and /or ST
18.0 As seen above the assessee is having the option of having CS under VAT and / or under ST. The table below will give an idea about the options available.

Options under VAT
Options under ST
Actual value of goods
CS
Actual value of services
CS
Option A
XX
Yes
XX
Yes
Option B
XX
Yes
Yes
XX
Option C
Yes
XX
Yes
XX
Option D
Yes
XX
XX
Yes
Conclusion:
19.0 Taxation of WC has always posed problems for both, the taxpayers and the administration. CS is the best compromise to the vexed issues involved therein. The state governments have imposed various conditions for availing benefit under CS under VAT. As can be seen, the provisions of CS under ST are one step ahead. It provides various options to the assessee making it possible to keep the tax liability at the lowest level. Perhaps it may become a point of envy for service providers for various other services. If structured methodically, there is no reason why it cannot be a boon for the works contractor. various other services. If structured methodically, there is no reason why it cannot be a boon for the works contractor.




Service taxation of works contracts
The issue of the appropriate taxation of the material and non material (labour/services) elements of a works contract has been a contentious matter for a long time.
The decision of the Supreme Court in Bharat Sanchar Nigam Ltd versus Union of India (2006 (2) STR-161), was a landmark one in that it held that value-added tax (VAT) and service tax were mutually exclusive and would operate in their respective domains.
It held that a transaction in its entirety could not be charged to both taxes and that consequently double taxation of a single transaction, comprising both services and transfer of property in goods, was impermissible. This principle is particularly relevant for understanding the treatment of works contract for the purpose of indirect taxes.
A recent decision of the Supreme Court in Imagic Creative Pvt Ltd versus Commissioner of Commercial Taxes (2008 (9) STR 337), has reaffirmed this principle in relation to a particular category of works contract. The Court had to address the question of whether the charges for conceptualization and design of advertising material on which service tax had already been paid would be eligible to VAT under the relevant state VAT law.
The Kerala High Court had upheld the advance ruling in the matter that since the advertising material so conceptualized and created was undoubtedly sold, in that property in such materials stood transferred from the advertising agency to the customer who had commissioned the work, VAT would be chargeable on the whole contract, which was held to be an indivisible one.
The High Court took note of the judgments of the Supreme Court in the Associated Cement Company (ACC) case (2001 (128) ELT-21) as well as the Tata Consultancy Service case (2006 (3) SCC1) and held that the aforesaid activity did amount to an indivisible contract and was hence chargeable to VAT.
The Supreme Court, on appeal, set aside the order of the Kerala High Court and held that in both the ACC and the TCS cases, the taxation of a works contract involving both services as also the supply of goods was not in consideration and that the issue in those cases was in relation to determination of the value of goods alone, for the purpose of sales taxation.
Accordingly, the Supreme Court differentiated the above decisions and also took note of the decision in the BSNL case and held that in a composite contract such as the one in case (importantly, the Court distinguished a composite contract from an indivisible contract) and held that the respective parameters of services and sales taxation would apply on a mutually exclusive basis.
The Supreme Court therefore held that in the instant case it was incorrect to hold, as was done by the High Court, that sales tax/VAT would be payable on the value of the entire contract irrespective of the element of service provided thereunder, on the supposed ground of indivisibility.
The Supreme Court also held that the legal fiction that was created by the Constitutional amendment, in order to bring works contracts under VAT, was to be applied only to the extent it was applicable. Thus, while the full effect must be given to the legal fiction, it should not also be applied beyond the point which was contemplated by the legislature since this would lead to either anomaly or absurdity.
Efforts should be made in interpreting a statute to ensure that a reasonable outcome was achieved and where two statutes were relevant, the provisions of both were made equally applicable. These are significant and important observations by the Supreme Court and need to be kept in mind for future interpretations of works contracts.
In another recent decision in Johny Joseph versus State of Kerala [2008] 13 VST 64), the Kerala High Court has come to the conclusion that the activity of taking photographs and developing and printing of photograph film would, in totality, constitute a works contract and would hence be chargeable to VAT.
In this decision, the Kerala High Court was again concerned with the 46th Amendment to the Constitution which was made in order to empower the State to bifurcate a works contract and to levy sales tax on the value of the materials involved in the execution of such a contract, regardless of the magnitude of such value.
This case is interesting for the reason that it holds that after the decision of the Supreme Court in the BSNL case, as also in the ACC case, the erstwhile decision of the Supreme Court in Rainbow Colour Lab versus State of Madhya Pradesh [2006] 3 VST 95, was no longer good law and that the transfer of goods involved in the execution of a works contract, which was part of the deeming fiction created by the 46th Amendment, was chargeable to sales tax and that the intent of the contract was not relevant.
Purely through the deeming fiction, sales tax was applicable on the transfer of property in goods used in the works contract, regardless of its value. The High Court followed the decision of the Supreme Court in the BSNL case in coming to this conclusion. It is thus now settled that works contracts will now be chargeable to both service tax and VAT, insofar as they are composite contracts with both material and labour elements being present.
It is also equally clear that both these taxes can only be applied in their respective domains and cannot apply to the entirety of the contract. It is therefore incumbent on works contractors to ensure that they appropriately discharge their liabilities to the two taxes, as according to the options available under the respective statutes.
Works Contract under Service Tax- How to make it work?
Works Contract under Service Tax- How to make it work?
Overlapping of Services
1.0 One of the surprising items of the Budget 2007 was levying Service Tax (ST) on Works Contract (WC). This is for the reason that no one has ever expected it nor it was debated at any level till date. Secondly, the existing provisions of S. 65(105)(zzh), 65(105)(zzq) and 65(105)(zzd) relating to services like commercial or industrial construction service, construction of complex, erection commissioning or installation were already taking care of the services covered under WC. A glance at the provisions of S. 65(105)(zzzza) of the Finance Act relating to definition of WC, will make one wonder how and in what respect it differs from the existing provisions. Was there any justification for inserting new service under the title “Execution of Works Contract”? Will it not lead to complications as the same service will fall into two different types of services? Which section will have to be applied for which service? Like these many other issues will crop-up.

1.1 WC has various aspects viz. definition, which goods have been transferred, value of goods transferred, credit for tax paid etc. An attempt as been made here to discuss definition and other connected aspects like classification of goods. In view of space constraint other issues viz. valuation, tax credit, composition scheme etc. emerging out of taxation of WC have not been covered.

WC under Local Sales Tax Laws
2.0 Levying tax on WC under local sales tax has generated lot of heat till date and will continue to do so even under the existing provisions of Value Added Tax (VAT) Act. Ever since the judgment of the Supreme Court in the case of Gannon Dunkerley, the heat has not cool down. This is despite the fact that large number of judgments by the Supreme Court and High Courts of the various states since 1954 i.e. the judgment of the Madras High Court in the case of Gannon Dunkerley, have tried to examine the issues involved from various angles. In the process, what has happened is that more and more new dimensions have been added, making the issue more complex.

2.1 As if this was not enough, the introduction of ST on WC has added one more dimension to the issue, though not in the realm of VAT but adding wooes for the service providers. The objective of levying tax on service is to put at par the service providers with manufacturers of the goods and have additional source of revenue. However, reading the provisions of ST on WC one is left in no doubt that the Government will not only get more revenue from WC service provider but also from chartered accountants as well. This is for the reason that these provisions will give additional boost to their professional assignments!

Wooes of WC under Sales Tax Laws
3.0 Levying tax on WC has not been easy task for any of the Sate Governments. Since the State Governments are not permitted to tax services, vivisecting the WC transaction and levying tax on transfer of property involved therein has posed serious problems. The issues arising therein are:

-Is the transaction a sale of goods or service?
-Is it a job work or works contract?
-If it is WC whether any property in the goods passes to the buyer?
-If the property is passing to the buyer then at which stage and in what form?
-Is it necessary that all the goods used should exist at the time of passing of the property?
-What will happen if certain goods get extinguished in the process of execution of WC and thus do not get transferred to the buyer?
-How to determine value of goods passing to the buyer?
- How to exclude value of services and levy tax on goods transferred?
- Whether any value is required to be assigned for the goods which have been consumed and could not be transferred?

3.1 Apart from that, all the State Governments started extending the definition of WC so that more and more activities, not falling into the category of sale of goods, can be covered. Having created enough complications, there was no alternative but to find out a short-cut which can solve all these issues. An easy solution was to have a composition scheme. Under the scheme, various transactions were identified which can be treated as WC. Percentages on an ad hoc basis have been fixed for service element involved in each one and tax is being levied on the remainder portion.

3.2 The problems encountered by the State Governments in levying tax in transfer of property in goods can also be faced by the Central Government if it wants to levy ST on it. This is for the reason that of the two aspects involved in the transaction, service is the other aspect. Since the ST is being levied on the service element of the transaction, as against value of goods transferred under VAT, all the issues as mentioned above are bound to arise here as well. Therefore, the easiest way for the Central Government was to devise the whole scheme in such a way that the service provider need not redefine the services or recalculate value of service element but to extract it from the one which has already been computed under the State Laws. It is for this reason one will come across reference to “levying of tax on sale” by the State Government in the Service Tax provisions. It will be appreciated that two different types of taxes are being levied on the same set of transactions under two different statues. Therefore, total value for levying tax cannot exceed the valuation adopted in each case. In order to avoid legal complications, the best solution is to adopt the valuation in the case of sales tax / VAT.

3.3 An issue that still baffles one is the reason for having overlapping of services. Moreover, as against large number of items being covered under VAT laws, why only limited items have been covered under the definition of WC. It appears that the definition of WC will be expanded in such a way that all the items covered under the definition of WC under VAT laws of the State Governments may be covered under the ST provisions. In such a scenario, various services as referred to above may be withdrawn from charge of tax. If it so happens, there will be consistency in chargeability and valuation of services throughout the country.

Classification of Services
4.0 One cannot have any objection about the methodology followed. However, one would have expected a clear picture in this regard. As we shall see while discussing various other aspects of taxation of WC there is no clarity. Let us have a look at the provisions of S. 65(105)(zzzza) regarding WC and compare it with other provisions.

Clause (a) of the definition covers

WC Service
Existing Services under various other provisions
“works contract” means a contract wherein,—
(i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and
(ii) such contract is for the purposes of carrying out,—





(a) erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise,


installation of
electrical and electronic devices,



plumbing, drain laying or other installations for transport of fluids,

heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work,


thermal insulation, sound insulation, fire proofing or water proofing,


lift and escalator, fire escape staircases or elevators; or
(39a) “erection, commissioning or installation” means any service provided by a commissioning and installation agency, in relation to,—
(i)erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise; or
(ii) installation of—
(a) electrical and electronic devices, including wirings or fittings therefor; or

(b) plumbing, drain laying or other installations for transport of fluids; or

(c) heating, ventilation or air-conditioning including related pipe work, ductwork and sheet metal work; or

(d) thermal insulation, sound insulation, fire proofing or water proofing; or

(e) lift and escalator, fire escape staircases or travelators; or
(f) such other similar services;

As can be seen, clause (a) covers “including wirings or fittings therefore” which is not the case under WC. It means that the services of pure wiring or fittings will not be covered under WC but will continue to be so under S. 65(39)(a).

Another difference here is clause “(f) such other similar services”. This is an enabling clause. However, provisions of WC are under (zzzza) very specific and similar services cannot be covered under WC.

4.1 Clause (b) is relating to construction of a building or a part thereof, laying down of pipeline etc. An important aspect hereof is that it should be related to commerce and industry only. Therefore, construction of building or laying down of pipeline for residential purpose will not fall under this clause. However, it may fall into other sub-clause.

WC Service
Existing Services under various other provisions
(b) construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or
S. 65 (25b) “commercial or industrial construction service” means—
(c) completion and finishing services such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services, in relation to building or civil structure; or
(d) repair, alteration, renovation or restoration of, or similar services in relation to, building or civil structure, pipeline or conduit,
which is—
(i) used, or to be used, primarily for; or
(ii) occupied, or to be occupied, primarily with; or
(iii) engaged, or to be engaged, primarily in,
commerce or industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams;

S. 65(25)(b) is more exhaustive as it precisely defines what is covered there under. Later portion of S. 65(25)(b) specifically excludes services related to roads, airports, railways, transport terminals, bridges, tunnels and dams. These exclusions have been taken care of while drafting S. 65(105)(zzzza).

WC Service
Existing Services under various other provisions

(c) construction of a new residential complex or a part thereof; or
(30a) “construction of complex” means—
(a) construction of a new residential complex or a part thereof; or
(d) completion and finishing services,











repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or
(b) completion and finishing services in relation to residential complex such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services; or

(c) repair, alteration, renovation or restoration of, or similar services in relation to, residential complex;
(64) “management, maintenance or repair” means any service provided by—
(i) any person under a contract or an agreement; or
(ii) a manufacturer or any person authorised by him, in relation to,—
(a) management of properties, whether immovable or not;
(b) maintenance or repair of properties, whether immovable or not; or
(c) maintenance or repair including reconditioning or restoration, or servicing of any goods, excluding a motor vehicle;


4.2 First part of WC services refers to completion and finishing services. Unlike in the case of S. 65(105)(30)(a), which is applicable to residential complexes only, provisions hereof are applicable in all the cases. Same is the case with repairs or alterations which is applicable to both the types of building i.e. commercial and residential.

4.3 As can be seen, services like commercial or industrial construction service, construction of complex, erection commissioning or installation and are falling under more than one category. This will naturally call for applying provisions of S. 65A which lays down principles of classification. Applying these principles, wherever the WC attracts provisions of local VAT laws, provisions of S. 65(105) (zzzza) i.e. “Execution of Works Contract Service” will be applicable. In case, if for any reason, in a particular State, no tax is levied as sale of goods then such contract will fall into the category of commercial or industrial construction service, construction of complex, erection commissioning or installation. This is for the reason that WC under section (zzzza) has been defined as “works contract” wherein, transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods.” Thus, levy of tax as sale of goods is an essential condition; it is a specific condition for being chargeable under ST. If the WC fails to satisfy it then provisions of other clause may be applicable.

Applicability – new WC or Running WC
5.0 This may be true for new contract to be entered into henceforth. However, a question that remains to be answered is what will be the status of the contracts which are in the process of execution. It may be noted that bills in respect of such contracts are being raised in stages and each stage is billed separately. There is no direct answer to it. However, if the Dealer is not under composition scheme of the local VAT laws then services rendered after 1-6-2007 will be governed by the provisions of S. 65(105) (zzzza) and the tax will have to be paid accordingly. However, if the Dealer is under the Composition Scheme of the local VAT laws then it may not be possible to opt for the Composition Scheme under Service Tax. This is for the reason that the provisions of Rule 3 provides for the assessee to exercise the option prior to the payment of service tax in respect of such WC. Since the assessee has already started making payment for such ongoing WC, provisions of Rule 3 of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 cannot be invoked.

The table below will give some idea about the methodology to be adopted for classifying the services.


Tax leviable under sales tax laws
Covered within the definition of WC u/s 65(105)(zzzza)
Whether the service is covered under any other provision of S. 65(105)
Chargeable under
Service A
Yes
Yes
Yes
WC
Service B
No
Yes
Yes
Under appropriate section – not as WC
Service C
No
No
Yes
Under appropriate section – not as WC
Service D
Yes
Yes
No
WC

Defining the WC
6.0 S. 65(105)(zzzza) defines “works contract” as
a contract wherein,—
(iii) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and”

The wordings “leviable to tax as sale of goods” are vague. As we know, despite the Empowered Committee having drawn a model code of VAT Act, none of the State Governments have adopted it. Each State Government has drafted VAT laws as per their requirements. Thus, there is no consistency in the state laws. Let us see a few of definitions of WC under some of the State laws.
Gujarat VAT Act:
S. 2 (23) “sale” means a sale of goods made within the State for cash or deferred payment or other valuable consideration and includes,-
(b) transfer of property in goods (whether as goods or in some other form) involved in execution of a works contract,
Explanation (ii):
for the purpose of sub-clause (b) of the expression “works contract” means a contract for execution of works and includes such works contract as the State Government may, by notification in the Official Gazette, specify;
Delhi VAT Act:
S. 2 (zo) "works contract" includes any agreement for carrying out for cash or for deferred payment or for valuable consideration, the building construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, repair or commissioning of any moveable or immovable property;
Karnataka VAT Act:
S. 2 (37) 'Works contract' includes any agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property.
Andhra Pradesh VAT Act:
S. 2 (45) "Works contract" includes any agreement for carrying out for cash or for deferred payment or for any other valuable consideration, the building construction, manufacture, processing, fabrication, erection, installation, laying, fitting out, improvement, modification, repair or commissioning of any movable or immovable property;
Haryana VAT Act:
S. 2 (zt) "works contract" includes any agreement for carrying out for cash, deferred payment or other valuable consideration, the assembling, construction, building, altering, manufacturing, processing, fabrication, installation, fitting out, improvement, repair or commissioning of any moveable or immovable property;
6.1 As can be seen from above, there are variations in definition of WC in each case. Looking to the provisions it appears that for the purpose of WC under Service Tax provisions of the respective state laws will have to be examined. If the services as mentioned in S. 65(105)(zzzza) are also covered under the state laws then it will be taxed as WC.
6.2 An offshoot of the application of the said definition will be in the case of a service which is, say, taxable as WC in the State of Maharashtra but may not be so in Karnataka or Andhra Pradesh. Does it mean that the same service will be treated separately under section 65(105)? As far as rate of tax is concerned it may not make any difference. However, it does make substantial difference when the assessee opts for composition scheme under WC. Composition Scheme under WC is more tax efficient than service being chargeable under other provisions. Is it not a case of discrimination?
Conclusion:
Transactions covered as WC under VAT laws forms fairly large portion of overall business activities. Same will be true for ST. Introduction of S. 65(105)(zzzza) is a beginning. Time is not far away when all the types of WC under ST may be brought under one umbrella of S. 65(105)(zzzza). The assessee will have to learn to live with it, earlier the better it is.