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Section 194C: TDS on payment to Contractors

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Hiral Vakil

TDS
TDS Sections

As per section 194C, When a person responsible for paying any sum to a resident contractor for carrying out any work (including the supply of labour) in the 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.
As per section 206AA if the deductee fails to provide the PAN to deductor then he would suffer deduction at higher of the rates of deduction as: At the rate specified in the relevant provision of the Act, or, At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20), or At the rate of 20%
Tip
As per section 206AA if the deductee fails to provide the PAN to deductor then he would suffer deduction at higher of the rates of deduction as: At the rate specified in the relevant provision of the Act, or, At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20), or At the rate of 20%

Specified person includes:

  1. The Central Government or any State Government, or
  2. The local authority, or
  3. Any corporation established by or under a Central, State or Provincial Act, or
  4. Company, or
  5. 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. A registered society, or
  8. Any trust
TDS Return (26Q) for Non-Salary Payments (Annual)
CA Assisted TDS return filing plan for employers, firms and companies making payment of Professional fees, Rent, Contracts, Commission, etc.
[Rated 4.8 stars by customers like you]
TDS Return (26Q) for Non-Salary Payments (Annual)
CA Assisted TDS return filing plan for employers, firms and companies making payment of Professional fees, Rent, Contracts, Commission, etc.
[Rated 4.8 stars by customers like you]

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.

As per section 206AB, if the aggregate of TDS and TCS for deductee is INR 50000 or more in each of these two previous years and deductee has not filed the returns of income for two previous years immediately prior to the previous year in which tax is required to be deducted then he would suffer deduction at higher of the rates of deduction as: At twice the rate specified in the relevant provision of the Act; or At twice the rate or rates in force; or At the rate of 5%
Tip
As per section 206AB, if the aggregate of TDS and TCS for deductee is INR 50000 or more in each of these two previous years and deductee has not filed the returns of income for two previous years immediately prior to the previous year in which tax is required to be deducted then he would suffer deduction at higher of the rates of deduction as: At twice the rate specified in the relevant provision of the Act; or At twice the rate or rates in force; or At the rate of 5%

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%.

TDS Calculator
TDS (Tax Deducted at Source) is a part of Income Tax. TDS should be dedcuted by a person for specific payments made.
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TDS Calculator
TDS (Tax Deducted at Source) is a part of Income Tax. TDS should be dedcuted by a person for specific payments made.
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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.

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

Section 194C shall not apply in the following cases :

FAQs

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.

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

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

Whether the provisions of section 194C are also applicable to a non-resident?

No, the payments made to non resident contractor would come within the preview of section 195.

Got Questions? Ask Away!

  1. Hey @Dia_malhotra

    As per section 194A, TDS on interest other than interest on securities is required to be deducted by any person other than Individual or HUF at the rate of 10%, when paid to a resident. No surcharge, education cess or SHEC shall be added to the above rate.

    Hope this helps!

  2. Hey @HarishMehta

    TDS u/s 194J needs to be deducted by deductor other than an individual or a HUF, @ 10% on any amount paid or payable to any which is in excess of INR 30,000 as:

    1. Fees for professional services
    2. Fees for technical services
    3. Any remuneration or fees or commission by whatever name called paid to a director ( other than salary)
    4. Royalty
    5. Any sum referred to in clause (VA) of section 28.

    Hope this helps!

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