Section 194C – TDS on Contractor

Section 194C – Must know about TDS on payment to contractors

What is Section 194C – TDS on payment to contractors or sub-contractors

Section 194CTDS on Contractor contains a provision related to the deduction of tax at source (‘TDS’) on payment to Contractors or Sub-Contractors.

Table of Contents

  1. Who is responsible for tax deduction u/s 194C ?
  2. TDS rate u/s 194C ?
  3. Meaning of work u/s 194C ?
  4. Meaning of term Sub-Contractor u/s 194C ?
  5. When no tax is deductible u/s 194C ?
  6. Time limit for depositing TDS u/s 194C
  7. Time of tax deduction u/s 194C
  8. When no tax is deductible u/s 194C ?
  9. FAQs on Section 194C – TDS on Contractor

Who is responsible for tax deduction u/s 194C ?

194C of Income tax states that any person responsible for paying to contractor or sub-contractor for carrying out any work (including  supply of labour for carrying out work) in pursuance of a contract between a specified person and the resident contractor

Specified persons’ as per section 194C includes any of the followings:

  • Company
  • Firm / LLP
  • Individual or HUF if the amount paid or credited is not exclusively for personal purposes of individuals or HUF
  • Trust
  • AOP/BOI whose books of accounts are required to be audited under section 44AB (a) or (b) immediately preceding preceeding financial year
  • Local Authority
  • Central Government
  • State Government
  • Corporation established by or under a Central, State or Provincial Act
  • Co-operative society
  • authority constituted in India or under any other law
  • society registered under the Societies Registration Act
  • University
  • foreign Government or a foreign enterprise or any association or body established outside India

TDS rate u/s 194C ?

The TDS rate under section 194C is as follows:

  Upto 13/05/2020 From 14/05/2020 To 31/03/2021
If the recipient is an Individual / HUF 1.00% 0.75%
If the recipient is any other person 2.00% 1.50%
     

What is TDS rate if PAN not available ?

If the recipient does not furnish his PAN to the deductor, TDS will be deducted at the rate of 20%.

Whether surcharge, education cess to be added in TDS rate ?

Surcharge or health and education cess is not to considered in TDS rate.

Meaning of work u/s 194C ?

The term ‘work’ for the purpose of section 194C includes

  • Advertising
  • Broadcasting and telecasting
  • Catering Services
  • Carriage of goods or passengers (excluding railways)
  • Manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer or its associates.

Associates for the purpose is a person placed similarly in relation to such customer as it the person placed in relation to the assessee under the provisions of section 40A(2)(b).

Meaning of term Sub-Contractor u/s 194C ?

The expression ‘Sub-Contractor’ means

  • Contact with the contractor for carrying out work
  • Supplying of labour for carrying out work by the contractor

When no tax is deductible u/s 194C ?

No TDS is required to be deducted u/s 194C in the following cases

·       Consolidated amount below Rs 1,00,000/-:

Aggregate amount of sum credited or paid does not exceed Rs 1,00,000/-

·       Single transaction below Rs 30,000/-:

Single amount credited or paid does not exceed Rs 30,000/-

Time limit for depositing TDS u/s 194C

The time limit for depositing TDS amount to the account of the Government

  • Government: The amount needs to be paid on the same day where the payment is made by or on behalf of the Government
  • Other than Government:
    • Amount paid or credit in March, within next month by 30th April 
    • Any other case: the amount has to be deposited within the 7th of the next month.

Time of tax deduction u/s 194C

The tax shall be deducted u/s 194C, being earlier of the followings:

  • at the time of payment;
  • at the time of credit of such income to the account of the payee

Lower / Nil deduction of TDS on Fees for professional or technical services under section 197

The recipient of Income can apply in Form No 13 to the Assessing Officer to get a certificate authorizing the payer to deduct tax at lower or deduct no tax as may be appropriate.

FAQs on Section 194C – TDS on Contractor

Is TDS rate is different for contractor and sub-contractor?

No, TDS rate is same for both contractor and sub-contractor in order to reduce disputes and litigation between taxpayer and tax department.

Is TDS applicable on personal purposes?

Payment by Individual or HUF to a resident contractor for personal purposes is not subject to tax deduction.

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