Monday, July 2, 2012

TDS ON PAYMENT TO CONTRACTOR SECTION 194C AT A GLANCE


on Monday, July 2, 2012

Basic :Payments to contractor -Section 194C applies to a person who is responsible for “paying any sum to a contractor or sub-contractor”. Such contractor or sub-contractor should be a resident in terms of section 6 of the I.T . Act, 1961

Time of Deduction : As per Section 194C the payer is enjoined to deduct tax at source at the time of credit of any sum to the account of contractor or at the time of payment either in cash or by cheque or draft which ever is earlier .

Even where the credit is made in any account called “Suspense Account” or in the books of account of the person liable to pay such income, such credit will be deemed to be in the account of payee (contractor or sub-contractor as the case may be) and deduction of tax will have to be made.

Nature of Payment To contractor :The deduction is to be done for payment for carrying out any work(including supply of labour) in pursuance of a contract between the contractor and a specified person . 

Job work :Where any sum is paid or credited for carrying out any work pertaining to manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased by such customer , then the tax is to be deducted at source ;
  1. On the invoice value excluding the value of material, if such value is mentioned separately in the invoice; or 
  2. On the whole of the invoice value, if the value of the material is not mentioned separately in the invoice.
TDS rate : The deduction is to be made at the following rates :(applicable from 01.10.2009 ) (also applicable for Financial year 2012-13 Assessment year 13-14)
  • 1% where payment/credit is to an individual/HUF .(check Forth Digit of Pan of contractor "P" or "H")
  • 2 % where recipient is any other person.
  • No cess and surcharge on Basic TDS rates given above on payment made to Residents .
TDS without PAN : If Pan has not been provided by the deductee, then TDS must be deducted @ 20% u/s 206AA. (read Section 206AA in detail)

Cut off amount :If the credit or the payment in pursuance of the contract does not exceed Rs.30,000/-, no deduction has to be made at source. However , if the aggregate of all amounts paid/credited or likely to be paid/credited exceeds Rs. 75,000/- then tax at source is to be deducted.


Due date of Deposit: Before 7th of Next month , However if deposit by Book Adjustment by Govt department then on same day.Tax deducted in the Month of March due date is April 30th.

Exemption -
  1. Individual /HUF personal Purpose :No TDS to be done by an Individual or an HUF on a contractual payment of work which is for personal purposes of the individual or the HUF .
  2. No TDS on Transporter :No deduction is to be made for sum credited/paid to a contractor during the course of business of plying/hiring/leasing of good/carriages on furnishing Pan to the payer/ deductor .
Person responsible to deduct Tax
  1. Central Government or any State Government;
  2. Local authority; or
  3. Corporation established by or under a Central,State or Provincial Act; or
  4. Company ; or
  5. Co-operative society ; or
  6. Authority , constituted in India by or under any law ,engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or
  7. society registered under the Societies Registration Act, 1860(21 of 1860) or under any law corresponding to that Act in force in any part of India; or
  8. trust; or
  9. University established or incorporated by or under a Central S tate or Provincial Act and an institution declared to be university under section 3 of the University Grants Commission Act, 1956(3 of 1956); or 
  10. Government of a foreign State or a foreign enterprise or any association or body established outside India; or 
  11. Firm; or 
  12. Person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, if such person -
    • does not fall under any of the preceding sub clauses; and 
    • is liable to audit of accounts under clause (a) or clause (b) of section 44 AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor;
No TDS by Individual /HUF in First year of Operation of business in any case:A sole proprietor or an individual is supposed to deduct tax under sections 194A, 194C and 194J if his books of account are required to be audited under section 44AB in the immediately preceding financial year. 

So no Tds is required to be deducted in First year of Business by Individual /HUF as there is no preceding year and books of account are not required to be audited under section 44AB in immediately preceding year.

Goods carriage’ shall have the meaning assigned to it in the Explanation to sub-section(7) of the section 44AE;

contract’ shall include sub-contract ;

Meaning of Work  ‘work’ shall include 
  • advertising;
  • Broadcasting and telecasting including production of programmes for such broadcasting or telecasting ;
  • carriage of goods or passengers by any mode of transport other than by railways; 
  • catering ; 
  • manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer , but 
  • does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer .
Other Related Links


Payments to contractors.
194C. (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to—
               (i)   one per cent where the payment is being made or credit is being given to an individual or a Hindu undivided family;
             (ii)   two per cent where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family,
of such sum as income-tax on income comprised therein.
(2) Where any sum referred to in sub-section (1) is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
(3) Where any sum is paid or credited for carrying out any work mentioned in sub-clause (e) of clause (iv) of the Explanation, tax shall be deducted at source—
               (i)   on the invoice value excluding the value of material, if such value is mentioned separately in the invoice; or
             (ii)   on the whole of the invoice value, if the value of material is not mentioned separately in the invoice.
(4) No individual or Hindu undivided family 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 personal purposes of such individual or any member of Hindu undivided family.
(5) No deduction shall be made from the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor, if such sum does not exceed thirty thousand rupees :
Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds seventy-five thousand rupees, the person responsible for paying such sums referred to in sub-section (1) shall be liable to deduct income-tax under this section.
(6) 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 of plying, hiring or leasing goods carriages, on furnishing of his Permanent Account Number, to the person paying or crediting such sum.
(7) The person responsible for paying or crediting any sum to the person referred to in sub-section (6) shall furnish, to the prescribed income-tax authority or the person authorised by it, such particulars, in such form and within such time as may be prescribed.
Explanation.—For the purposes of this section,—
               (i)   “specified person” shall mean,—
        (a)   the Central Government or any State Government; or
        (b)   any local authority; or
        (c)   any corporation established by or under a Central, State or Provincial Act; or
        (d)   any company; or
        (e)   any co-operative society; or
         (f)   any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or
        (g)   any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India; or
        (h)   any trust; or
         (i)   any university established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a university under section 3 of the University Grants Commission Act, 1956 (3 of 1956); or
         (j)   any Government of a foreign State or a foreign enterprise or any association or body established outside India; or
        (k)   any firm; or
         (l)   any person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, if such person,—
        (A)   does not fall under any of the preceding sub-clauses; and
       (B)   is liable to audit of accounts under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor;
             (ii)   “goods carriage” shall have the meaning assigned to it in the Explanation to sub-section (7) of section 44AE;
            (iii)   “contract” shall include sub-contract;
            (iv)   “work” shall include—
        (a)   advertising;
        (b)   broadcasting and telecasting including production of programmes for such broadcasting or telecasting;
        (c)   carriage of goods or passengers by any mode of transport other than by railways;
        (d)   catering;
        (e)   manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer,
                      but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer.]

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  1. Thanks for this valuable article...

    Section 194C has used the word 'payment', it means TDS should be deducted on payment. My question is with respect to 'Barter Agreement' in which actual payment not is made. Weather TDS should be deducted on Barter Agreement, if yes then how????

    Thanks & Regards,

    CA Vichitra Trivedi
    97703-68153

    ReplyDelete
    Replies
    1. Dear Vichitra

      A Barter System is only mode of payment ,we can not say that payment has not been made.Further we can easily assessed the product value where barter system has not been used for same product.

      Delete
  2. is the responsibility of deducting tds shit to payer if contractor don't deduct tax on worker he enggaged for tht work. for example my company is a film production company if we make contratct with director of film to produce the film then if the director doesnt calculate and deposit tds on artists he engages then wht ll be our liablity for tht tds not calculated or deposited

    ReplyDelete
    Replies
    1. First you have to clearly check that whether director is working as a principal or as your agent . In later case responsibility remains with you and in former case responsibility is with Director.

      Delete
  3. if the TDS on contractor payment monthly up to 30,ooo we should have to pay surcharge & education tax. because i pay only tds amount for example monthly tds paid amt 15492/-, i am not paid the surcharge or educational tax. it's right or wrong pls. advise

    ReplyDelete
    Replies
    1. surcharge /cess is not applicable on tds ,whether amount is less than 30000 or more than 30000

      Delete
  4. One contractor has been engaged for annual repair and maintenance work by a govt. department. The contractor used to supply materials and labour for different kinds of maintenance works. Apart from this some lift operator has also been supplied by the contractor. Kindly intimate whether the TDS @10% is deductible against the bill for lift operators charges under section 194J of IT Act?

    ReplyDelete
    Replies
    1. Tds is required to be deducted at 2 % not at 10%

      Delete
  5. Is TDS applicability on purchase of building above 20 lakh ( other than purchase in 7 specified zone/area ) for residentail or commercial purposes by any purchaser, i.e. individual ,H.U.F., Company etc the tds has to be deduct and what rate

    ReplyDelete
    Replies
    1. No tds applicable on sale of building (immovable property ) of any value except if seller is non resident in India .

      Delete
  6. If TDS for a particular party is not deducted during a Financial year and if the party has paid their service tax during that financial year will it be sufficient if we can just get a letter from the party that they have paid the tax from their side and not pay and deduct the TDS from the party or should we pay the TDS from the party and deduct from their next bill amount.

    ReplyDelete
    Replies
    1. The letter is to be issued from CA .Further you have to pay interest also . So you should avoid such methods and should deduct & pay tax as required ,if late ,deposit interest also.

      Delete
  7. Whether TDS is required to be deducted at the time of making advance payments to cntractors?? if Yes, and TDS has not been deducted can entire amount of TDS be deducted at the time of final balance payment??

    ReplyDelete
    Replies
    1. Yes , tds is required to be deducted on payment or credit whichever is earlier basis. so you should deduct tds on advance payment also .

      If not deducted at the time of advance ,you should deduct it on balance payment and pay interest for late deposit

      Delete
  8. I am a Software Professional and I do outsourcing work as an "Individual Professional" (NOT AS A COMPANY). I get work from Clients (mostly from USA using online freelancing websites)..

    I also have few friends (3-4) (software professionals) who work for me, some work on fixed salary (Rs 10,000/month), and i hire some additional software professionals (2-3) on per project basis (contractual / temporarily) depending on the project work load...

    My Gross Turnover is less and doesn't satisfy the requirement of Section 44AB, so my question is...

    Does the section 194A, 194C, 194J or any other sections related to TDS is applicable to me or not ? Am i liable for any TDS to be paid ?

    If so then TDS has to be deducted only on the salaried employees, or even to the freelancing temporary contracts or both ?

    Thanks in advance

    ReplyDelete
    Replies
    1. If your turnover is less than 25 lakh (as you are professional)in immediately preceding year then no need to deduct tax u/s 194A, 194J or 194C .Further TDS on salary is deductible only if tax due on net salary after deduction and other adjustments provided by the employee.As you are paying Just 10000 means 120000 per year , tds is not deductible on salary also.

      Delete
  9. If a person takes franchisee of some company providing satellite coaching services and pays service fee to company decided under contract. Whether tds on such fee payment will be deducted u/s 194C or 194J? If it will be treated as payment under contract to contractor or payment of professional technical services?
    Please help us.

    ReplyDelete
  10. Sir,

    I joined a Software company as a Consultant on Contract for 3 Months. My monthly pay is 70k. My company people may take me as a permanent employee, and that too only after 3 months, but for now i am a Contractor. Please help me as to how much tax would they deduct from me. Initially they told, its 10% on my Monthly Pay, now they are saying 20% and that too they are unsure.

    Request you to please guide.

    Regards,

    ReplyDelete
  11. i am thirupathi . container handling charges, demurrage, CAF ,THC weather TDS applicable or not which section applicable rules of the TDS , they are
    saying according provision section 172 shall apply and those of section 194c,and 195 will not apply ,yes or not

    ReplyDelete
  12. if contractor bill will be 80,000/- then how much tds would be deducted

    ReplyDelete
    Replies
    1. If contractor is HUF /Individual then deduct 800 in other case 1600

      Delete
  13. I am working in a company and paid tax . I received 5000 for advertisement from a website and they deducted 50 rupees and paid the 50 in my name as tax section 194c.

    Do I need to pay 450 extra tax now if i mention 5000 in my returns

    ReplyDelete
  14. My company is purchasing raw material from customer on excise invoice & is selling goods manufactured from this to the same customer on excise invoice.
    Is TDS deduction from my customer is applicable on us & at what rate?
    Pl. help.

    ReplyDelete
  15. I am a Software Professional and I do outsourcing work as an "Individual Professional" (NOT AS A COMPANY). I get work from Clients (mostly from USA using online freelancing websites)..

    I also have employees (10-12) (software professionals) who work for me and i hire some additional software professionals (2-3) on per project basis (contractual / temporarily) depending on the project work load...

    My Gross Turnover is more than 1 crore, so my question is...

    If I have to deduct the TDS of freelancing temporary contracts, what will be the rate of TDS and under which section ?



    Thanks in advance

    ReplyDelete
    Replies
    1. On temporary contracts with professionals ,you have to deduct tax under section 194J @ 10 % ,if payment exceeds 30000/- in a year to one person.

      Delete
  16. One of my client deducted tds and credited to my company pan account. But they have not made any payment to us. we came to know about tds through 26AS only. Now Shall we legally proceed to claim our payment? They have deducted the tds means they have accepted our invoices? Please clarify. This payment is matter of business survival.

    ReplyDelete
    Replies
    1. As per rules ,even if amount is credited in suspense account then also tds is deductible. so while claiming your amount you can also raise tds as one of the point but that can not be the only reason

      Delete
  17. sir, we regularly purchase motor parts equipments from a dealer. And sometimes he also provide services relating to machine like its maintenance. and the invoice realting to the servicin of machine is named as service invoice.
    So whether we have to deduct tds as per sec 194 C for the service he provided

    ReplyDelete
    Replies
    1. yes , why not .If annual limit has crossed then you should deduct tds amount

      Delete
  18. sir, what is the solution if we had not deducted TDS at the time of payment or credit, but now we deduct the same

    ReplyDelete
    Replies
    1. Nothing serious ,Just deposit the tax with interest on late deduction , Interest rate is 1 % for late deduction and file the return in the 3rd quarter

      Delete
  19. Hi

    For 2011-12 Financial Year, we booked an expense for 1 Lakh for a contractor. We forgot to pay TDS and we ultimately paid only in November 2013.

    The payment to the contractor is not yet made due to low cash in hand.

    My question

    a) Incase of any IT Scrutiny, will the expense booked of 1 Lakh be disallowed as the TDS was paid and filed late?

    b) We have paid all interest and penaly for late filing of TDS. So we do not have issues with TDS dept, but with IT dept, we are worried if dis-allowance would happen

    ReplyDelete
  20. Point wise answer given below

    a) Yes ,it will be disallowed in 2011-12
    http://taxclubindia.com/simple/2013-14/Disallowance%20on%20account%20of%20Non-deduction%20of%20TDS%20%E2%80%93%20Section%2040(a).pdf

    b) However ,100000 will be allowed as exp. in 2013-14

    ReplyDelete
  21. We are a pvt. ltd company and have purchased Furniture from another state. The vendor is giving a separate bill for transportation of such furniture by road. Now since 194C includes transport of goods by roads, so is TDS us 194 C @ 1% or 2% applicable on only transport bill or on both bill of purchase and transport? Kindly calrify.

    ReplyDelete