- A complete guide on Section 194C TDS – on payment to contractors
- Introduction
- Section 194C of the Income Tax Act deals with the tax deducted at source (TDS) that is required to be deducted from any payments made to a resident contractor or a subcontractor. Do not worry if you have no idea about Section 194C TDS, This article will provide all the information related to the purpose of section 194C for Contractors and Sub-contractors, and other related information on TDS under Section 194C of the Income Tax Act.
- What is Section 194C?
- Section 194C states that any person responsible for paying any sum to the resident contractor for carrying out any work (including the supply of labour), in pursuance of a contract between the contractor and the following:
- · The Central Government or any State Government
- · Any local authority
- · Any corporation established by or under a Central, State or Provisional Act
- · Any company
- · Any co-operative society
- · 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
- · Any society registered under the Society Registration Act, 1980 or under any such corresponding law to the Act in any Part of India
- · Any trust
- · Any university or deemed university
- · Any firm
- What is the meaning of work for the purpose of Section 194C?
- The expression, “work” in this section would include-
- · Advertising
- · Broadcasting and telecasting including production of programs for such broadcasting or telecasting
- · Carriage of goods and passengers by any mode of transportation, other than railways
- · Catering
- · Manufacturing or supplying of a product according to the requirement or specification of a customer by using the materials purchased from such customer or its associate as defined in section 40A(2), 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.
- Briefing on TDS to Sub-contractor
- According to the provisions of the Income Tax Act, any person (whether a contractor or a Hindu Undivided Family):
- · Accountable for any sum owed to any resident
- · According to a contract with the subcontractor for carrying out, or supplying labour for carrying out, the whole or any part of the work undertaken by the contractor, or for supplying whether wholly or partly any labour which the contractor has agreed to supply, the contractor shall,
- o At the time of crediting such sum to the subcontractor’s account or at the time of payment thereof in cash, by cheque or draft, or by any other mode, whichever is earlier.
- · Deduct 1% of the total as income tax on the income contained therein.
- TDS Rate for Contractors under Section 194C of the Income Tax Act
- · 1% where a payment is made or credit is extended to an individual or a HUF.
- · 2% wherever the payment or credit is to be made to another entity.
- · If PAN is not specified in the preceding cases, the TDS rate will be 20%.
- Important Note: Surcharges, education Cess, and SHEC (Secondary and Higher Education Cess) will not be imposed on taxpayers. TDS should be deducted at the standard rate.
- Section 194C TDS is not deductible under certain condition
- · The person responsible for paying such sums will not deduct TDS under this section if the sum paid or credited in pursuance of any contract does not exceed INR 30,000.
- · Alternatively, if the aggregate of such sums credited or paid or likely to be credited or paid during the fiscal year does not exceed INR 1,00,000.
- · If the payment or amount credited to the contractor is for personal use, the individual or HUF (Hindu Undivided Family) may not deduct tax.
- o No individual or HUF shall be liable to deduct income tax on any sum credited or paid to the contractor’s account if such sum is credited or paid solely for the personal benefit of such individual or any member of HUF.
- o On furnishing his PAN, no deduction shall be made from any sum credited or paid or likely to be credited or paid to the account of a contractor during the previous year in the course of business of plying, hiring, or leasing goods carriages to the person paying or crediting such amount.
- Due date for the Issue of TDS Certificate
- TDS certificates in Form 16A must be issued quarterly for payments other than salary. According to Rule 31, anyone who is responsible for deducting tax from payments other than salary must issue a quarterly TDS certificate in Form 16A. The certificate is due on the following dates:
TDS at a Lower Rate
According to Section 194C where the AO is
satisfied that the total income of contractor or sub-contractor justifies the
deduction of income-tax at any lower rate or no deduction of income-tax, as the
case may be, the AO shall, on application made by the contractor or
sub-contractor in this behalf give to him such certificate as may be
appropriate. The contractor or sub-contractor can then furnish the lower rate
or nil TDS certificate to the deductor.
