Tax deduction at source on contracts

[Adil.Iqbal]

What happens if a company made a contract for the works of supplies and installation to a local reg company?


How is tax worked out in above situation?


Adil Iqbal

[m_zeeshanuddin_sa]

6% of gross amount

[aamirmehmood]

<b></b> It will become turn key contract and there is 6% tax on the gross amount on turn keys contracts.

[aamirmehmood]

I would like to add some thing,usually in ignorence some company when enter in the contract they dont care and try to get the contracts without going into its legality and implications of tax under income tax ordinance 2001 and ends up with the levey of turn key contracts.

Therefore care should be made at the time of the contract if services are the immeterial portion or supplies are mot material than one should not go as a single contract it will become a turn key and ends up with levy of 6% of tax.In these cases there should be two contracts one of supply of material and the other would be of services.

[LapTop]

If a company made contract for Supplies & Installation, Then.
Tax withheld by Client @-
Gross Amount of Supplies @ 3.5 %
Gross Amount of Installation Services @ 6%

[Anfal Shabbir]

ae Mr. Laptop 6% tax should be deducted from the gross bill amount in case of contract, as it is clearly mentioned in part III Div III of the first Schedule of Income Tax Ordinance 2001, plz correct it

[LapTop]

<center></center>First Schedule
<center></center>Division III
<center></center>Payments for Goods or Services
(1) The rate of Tax to be deducted from a payment referred to in clause (a) of sub-Section (1) of section 153 shell be.
(a) In the case of the sale of rice, cotton seed or edible oils, 1.5% of the gross amount payable.
(b) In the case of the sale of any other goods, 3.5% of the gross amount payable.

(2) The rate of Tax to be deducted from a payment referred to in clause (b) of sub-section (1) of section 153 shell be.
(i) In the case of Transport service, 2% of the gross amount.
(ii) In any other case 6% of the gross amount.

(3) The rate of tax to be deducted from a payment referred to in clause ( c) of sub-section (1) of section 153 shell be 6% of the gross amount.

<b>Section 153- (1)</b>
(a) For the sale of Goods.
(b) For the rendering or providing of services.
(c) On the execution of a contract, other then a contract for the sale of goods or the rendering or providing of Services.

Mr Neem Hakim Khatra Jaan, Read it, & now tell me u referred me clause ( c) subsection (1) of section 153, (on the execution of a contract, other then a contract for the sale of goods or the rendering or providing services), y u did not read this “ other then a contract for the sale of goods or the rendering or providing services.

If I contract with a company, for providing then steel,
Steel price inclusive ST (par ton) 50,000
Transport charges (par truck) 10,000

If I sold then 5 ton steel costing 250000/=
& transportation charges 50,000/=

In your opinion my client should deduct WHT @ 6%

But in the eye of Law my client should deducted WHT @ 3.5% of sales amount, & @ 2% of Transportation charges.

So Mr. I advice u that, don’t say that, what u want,,,,, say that , what Law says.

[Anfal Shabbir]

Mr.laptop i agree with your comments, thanks for updating me, plz clear me one more point what is turn key contract and also plz advice that two contract agreements will be made for service and goods or the one contract is enough thanks

[LapTop]

Mr. Anfal, unfortunately I don’t know what is turn key contract,
But If u study Contract Law, contract dose not mean a paper issued by court signed document. Contract can be Oral.

Contract has 2 main Component, 1st Offer 2nd acceptance.
For tax purpose, It is not important how many contract you made with clients,
Important is that what type of income you drive.
If , I offer to my client to sales of goods & He accept it, it is a contract, whither it is written or oral.
At time of sale I offer to my client “I provide you delivery service” & he accept it, as well as it is a contract,
So there are 2 contract but oral ,,,, what happed, nothing,,,,,,,,,
With the compliance of contract, income tax not involve.
Income tax involve when income will generate.

If, 2 person contract with each other, “they not interfere each other business”
What do u think, what rate will apply of this contract.
This is not a contract of sale or contract of services, this is simple contract.

So in my opinion, u can contract how many u want.

But u should separate your income by nature or block.