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TDS on Contractor Payments – Sec 194C

Introduction:

Section 194C of the Income Tax Act deals with TDS on Contracts. An individual paying any sum to a residential contractor, who carries out ‘work’ with the contract signed between the individual and also resident comes under the TDS Section of 194C.

Contract and Contractor:

 The contract between an Individual and the following are covered under 194C.
 The Central Government or any State Government.
 Any : local authority/company/Firm/ co-operative society/Trust/ university or deemed university.
 Any corporation established by or under a Central, State, or Provisional Act.
 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.

“Work” Terms per 194C:

 Catering;
 Advertising;
 Broadcasting and telecasting;
 Conveyance of goods/travelers by any method of transport (railways not included).
 Production/supplying a product based on the specification of buyers by utilizing material acquired from the buyer. Or it can be also associated with as per section 40A(2). It doesn’t bear when the material is purchased from an unspecified person other than the buyer.

Sub-Contractor:

Sub Contractor is a person with whom the contractor himself has outsourced the contract for carrying out the work.
The following covers under Sub-Contract
 The supply of labor for carrying out the whole or part of the work undertaken by the contractor under a contract with any of the authorities
 The supply of any labor which the contractor either as a whole or partially and has undertaken to supply the workforce in terms of his contract with any of the authorities mentioned under the 194C section.

TDS Payment to Sub-Contract:

The following rules should be met, in order to cover under TDS section 194c
 Payment is made to a sub-contractor who is resident within Section 6 of the Income Tax Act, 1961
 Payment is made by a resident contractor, who is not an individual or a HUF
 Payment is made to carry out any work, that includes labor supply as well.
 The amount of the contract with respect to the payment to be made should not be less than Rs. 30,000
 The sum should be credited or paid by the contractor in respect of a contract undertaken by him with the specified bodies only.

TDS-When to be Deducted

 The credit of the amount to payee’s account.
 Payment of amount to the payee either in the mode of cash/ cheque/ draft or any other medium, whichever is to be credited earlier.

TDS Rates

 If Payment / Credit to resident individual or HUF then the rate will constitute to 1%.But from 14.05.2020-31.05.2021 its been slashed at 0.75%
 If Payment/Credit to any resident person other than individual / HUF then the rate will constitute to 2%. But from 14.05.2020-31.05.2021 its been slashed to 1.5%
 If Payment/ credit to Transporters then no TDS is deducted.
However, for all the above cases, PAN has to be furnished if not 20% will be deducted.

Exceptions for TDS Deduction:

 Where materials are supplied by the government,
 On account of materials supplied by the government,
 Where the contractor has undertaken to construct a building or a dam,
 Where the contractor has undertaken only to provide the labor for the work
 When materials are supplied no deduction is possible. Consequently, no TDS is required to be made. However, when payment is made either in cash or in-kind to contractor/sub-contractor tax is required to be deducted.

NIL TDS under 194C

No tax is required to be deducted in the following cases:

 Where the sum paid or credited in accordance with any contract should not exceed Rs. 30,000,

 If the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year does not exceed Rs. 1,00,000 .Then the person responsible for paying such sums will not deduct TDS under this section

 Individual or HUF not to deduct tax if the payment or amount credited to the contractor is for personal use

 No individual or HUF 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 the personal purpose of such individual or any member of HUF

 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 transactions like hiring, leasing plying, hiring, etc…This has to be furnished along with PAN for such exemptions.

Time Limit for TDS DEPOSITION

 Government Organization- On the same day
 If the payment is made other than the Government- On or before 7 days from the end of the month in which deduction is made,
 If the amount is credited or paid in the month of March- On or before April 30
 In any other case- On or before 7 days from the end of the month in which the deduction is made.