Section 194C: TDS on payment to Contractors

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By Hiral Vakil on March 9, 2019

As per section 194C, When a person responsible for paying any sum to a resident contractor for carrying out any work ( including supply of labour ) in execution of a contract between the contractor and Specified Person, he shall deduct TDS while making the payment.

Work for the purpose of Section 194C shall include the following :

  1. Advertising
  2. Broadcasting and telecasting including production of programs for such broadcasting or telecasting
  3. Carriage of goods and passengers by any mode of transportation, other than railways;
  4. Catering
  5. Manufacturing or supplying of a product according to the requirement or specification of a customer by using the materials purchased from such customer, But does not include manufacturing or supplying of a product according to the requirements or specifications of a customer by using the materials purchased from a person, other than such a customer.

Specified person includes:

  1. The Central Government or any State Government, or
  2. Any local authority, or
  3. Any corporation established by or under a Central, State or Provincial Act, or
  4. Any company, or
  5. Any co-operative society, or
  6. Any authority constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the needs for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages or for both; or
  7. Any registered society, or
  8. Any trust, or
  9. Any trust, or

When to deduct TDS under section 194C?

The TDS shall be deducted while making payment. The payment date shall be either :

  1. Date of actual payment of cash or
  2. The date of crediting the sum to the payees account or
  3. The date of issue of cheque, draft or by any other mode, whichever is Earlier.

It shall also be noted that when any payment to be made to the contractor is credited to a “ suspense Account” or any other account by whatever name called in the payer’s books of account, it shall be considered as deemed payment and tax has to be deducted on such amount.

TDS Rates under section 194C

Nature of Payment TDS Rate
Payment to resident Individual or HUF 1%
Payment to any resident person other than Individual or HUF 2%

In a case where no PAN is provided by the contractor, the TDS shall be deducted at the rate of 20%.

Who is a sub-contractor as per section 194C?

Any person who enters into a contract with the contractor for the purpose of supply of labor either fully or partly for the work undertaken, shall mean as a subcontractor.

  • The contractor being a resident while making payment to the subcontractor shall deduct TDS at the rate of 1% .
  • The payment date shall be earlier of the date of actual payment of cash or the date of Crediting the sum to the payees account or the date of a cheque, draft or by any other mode.
  • It shall also be noted that the contractor should not be an Individual or HUF.
  • The subcontractor should also be a resident under the ambit of this section.
  • The amount of consideration of the contract should not be less than Rs 30000.

Who is exempt from deduction of TDS u/s 194C?

Section 194C shall not apply in the following cases :

  • If the single payment made during the the year to the contractor does not exceed Rs. 30,000 than no TDS is required to be deducted. But if the cumulative payments made during the year exceed Rs. 1,00,000 then the TDS needs to be deducted on all the payments made. The threshold limit of 75000 has increased to 100000 from AY 2016-17.
  • No TDS is to be deducted by the Individual or HUF for the payment to Contractor if such sum is expended for personal use.
  • No TDS shall be deducted on the amount paid to the contractor provided, he has a business of plying, hiring or leasing of goods and carriages. And he owns 10 or less goods or carriages at any point of time during the previous year. And has furnished his PAN.

FAQs:

1. Which TDS return should be filed for TDS deducted u/s 194C?

Deductor who deducts TDS from contract payments need to file quarterly return in Form 26Q before prescribed due date. Form 26Q contains detail of amount paid to contractor and TDS deducted.

2. What is the proof of TDS deducted u/s 194C?

In case of TDS deducted u/s 194C, deductor will issue TDS Certificate in Form 16A on quarterly basis. Deductor should issue Form 16A within 15 days from the due date of furnishing TDS return/statement.