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TDS on payment to contractor or sub-contractor – Section 194C

U.C Date : 22 Oct 2015

Persons required to deduct TDS under this section

Any specified person responsible for paying any sum to any resident contractor for carrying out any work is required to deduct tax at source. TDS is also required to be deducted for payment to sub contractor.

Tax is to be deducted even if contract is for supply of labour.

Time of Deduction

Tax is to be deducted when the amount is paid to or credited to the account of such contract or sub-contractor, whichever is earlier.

When TDS not deductible

  1. Contract amount below specified limits
    1. Amount of any single sum credited or paid doesn’t exceed Rs. 30,000
    2. Aggregate amount of such sums credited or paid doesn’t exceed and doesn’t likely to exceeds Rs. 75,000 (Rs. 1 Lakh from financial year 2016-17)
  2. Payment or credit to transporter for transportation
    If recipient is a transport operator  and he furnishes PAN to the deductor then TDS is not to be deducted. Such deductors will be required to intimate these PAN details to the Income tax Department in the prescribed format. However from 1st June, 2015 only transport operators who owns ten or less goods carriages at any time during the financial year is allowed such exemption. Transport operator has to furnish a declaration to this effect to the person paying him to get such exemption.
  3. Personal purposes
    Payment by an individual or HUF to a resident contractor for personal purposes is not subject to TDS.
  4. Payment is made to bank listed in the Second schedule to the RBI act excluding foreign bank for
    1. Bank guarantee commission
    2. Cash management service charges
    3. Depository charges on maintenance of DEMAT accounts
    4. Charges for warehousing services for commodities
    5. Underwriting service charges
    6. Clearing charges (MICR charges)
    7. Credit card or debit card commission for transaction between the merchant establishment and acquirement bank – Notification no. 56/2012, dated 31st December, 2012
  5. Payment is made for purchasing products according to the payer’s requirement or specification. If the product is manufactured using material purchased by the payer then TDS is required to be deducted.

Rate of TDS under section 194C

Payment To Rate of TDS if
PAN Furnished
Rate of TDS if
PAN NOT Furnished
Resident Individual or HUF 1% 20%
Company, Firm, LLP, or to any other resident person other than Individual/HUF 2% 20%
Transporters (Less than 10 Vehicle) NIL 20%
Transporters (More than 10 Vehicle) 1% or 2% according to
recipient status as above
20%

No surcharge or education cess is levied on payment to resident.

Assessee can apply to assessing officer for no TDS or TDS at lower rate under Section 197.

Threshold Limit in section 194C

Financial Year 2016-17
(A.Y 2017-18)
Financial Year 2015-16
(A.Y 2016-17)
Single payment or credit Rs. 30,000 Rs. 30,000
Aggregate amount paid or credited or likely to paid during the year Rs. 1,00,000 Rs. 75,000

Work shall include—

(a)  advertising
(b)  broadcasting and telecasting including production of programmes for such broadcasting or telecasting
(c)  carriage of goods or passengers by any mode of transport other than by railways
(d)  catering
(e)  manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer
but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer.

Other points

  • Tax is deductible on the amount excluding service tax, if the amount of service tax shown separately. Notification no. 01/2014
  • There is no surcharge, education cess or secondary and higher education cess payable under sec 194C.
  • In case of contract of manufacturing or supplying product, TDS shall be deductible on the value excluding the value of material, if such value is mentioned separately in the invoice. If not mentioned separately then TDS shall be deducted on the whole amount of invoice.

Related Pages:

Bare Act for Sec 194C

Bare Act for Sec 194C

(1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to—

(i) one per cent where the payment is being made or credit is being given to an individual or a Hindu undivided family;

(ii) two per cent where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family,

of such sum as income-tax on income comprised therein.

(2) Where any sum referred to in sub-section (1) is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

(3) Where any sum is paid or credited for carrying out any work mentioned in sub-clause (e) of clause (iv) of the Explanation, tax shall be deducted at source—

(i) on the invoice value excluding the value of material, if such value is mentioned separately in the invoice; or

(ii) on the whole of the invoice value, if the value of material is not mentioned separately in the invoice.

(4) No individual or Hindu undivided family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family.

(5) No deduction shall be made from the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor, if such sum does not exceed 86[thirty] thousand rupees :

Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds [seventy-five] thousand rupees (Rs. 1 Lakh from financial year 2016-17), the person responsible for paying such sums referred to in sub-section (1) shall be liable to deduct income-tax under this section.

(6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, where such contractor owns ten or less goods
carriages at any time during the previous year and furnishes a declaration to that effect along with his Permanent Account Number, to the person paying or crediting such sum.

(7) The person responsible for paying or crediting any sum to the person referred to in sub-section (6) shall furnish, to the prescribed income-tax authority or the person authorised by it, such particulars, in such form and within such time as may be prescribed.

Explanation.—For the purposes of this section,—

(i) “specified person” shall mean,—

(a) the Central Government or any State Government; or

(b) any local authority; or

(c) any corporation established by or under a Central, State or Provincial Act; or

(d) any company; or

(e) any co-operative society; or

(f) any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or

(g) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India; or

(h) any trust; or

(i) any university established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a university under section 3 of the University Grants Commission Act, 1956 (3 of 1956); or

(j) any Government of a foreign State or a foreign enterprise or any association or body established outside India; or

(k) any firm; or

(l) any person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, if such person,—

(A) does not fall under any of the preceding sub-clauses; and

(B) is liable to audit of accounts under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor;

(ii) “goods carriage” shall have the meaning assigned to it in the Explanation to sub-section (7) of section 44AE;

(iii) “contract” shall include sub-contract;

(iv) “work” shall include—

(a) advertising;

(b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting;

(c) carriage of goods or passengers by any mode of transport other than by railways;

(d) catering;

(e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer,

but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer.

10 comments

  1. Imtiyaz Shaikh

    We Received the Contract of Rs. 10,00,000/- including material & labour. We sub-let it of Rs. 8,00,000/- & sub-contractor give us RA Bill of Rs. 8,00,000/-. So my question is on which amount should I deduct the TDS or we ask the bifurcation in RA Bill Se-prate for material & Se-prate for Labour & deduct the TDS on Labour Part only.

    • Prateek Agarwal

      In case of contract of manufacturing or supplying product, TDS shall be deductible on the value excluding the value of material, if such value is mentioned separately in the invoice. If not mentioned separately then TDS shall be deducted on the whole amount of invoice.

  2. hi all
    my client has deducted tds on adv Rs 22000 on 23/3/16 and work is to be done during fy 16-17. while making payment of tds on above amt which ay should be selected??

    • Prateek Agarwal

      A.y 2016-17 should be selected.
      At time of payment, the year in which tds is deducted is to be selected.

  3. Sanjiv Swarup

    For financial year 2016 17 has limit been changed to Rs 1 lac

    • Yes, the limit has been changed from Rs 75,000 to Rs 1,00,000 for the FY 2016-17. The above limit is applicable from 01 June 2016.

  4. My. Query: what is the TDS that is deductible for the professeioonal fees paid to an Advocate for court matters.?
    Thanks

  5. Sir,
    My query is: we have engaged vehicles from one or two transporters, they don’t have more than 10 vehicles and he procure the vehicles from the market as per our requirement. The bills are raising on this letter head , the bills are more than 10lakhs for each month.
    please clarify the above transaction will applicable for TDS 194C?, they don’t more than vehicles, he procured from different transporters from market, he pays freight amount to their transporters after deducting commission.

    kindly advise.

    • Prateek Agarwal

      Hi
      Because the transporter owns less than 10 vehicles then TDS is not applicable to payment made to them.
      However you need to take his PAN card and a declaration to the effect that he doesn’t own more than 10 goods carriages at any time during the previous year form the transporter.

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