TDS ON PAYMENT TO CONTRACTOR SECTION 194C AT A GLANCE

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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 in Financial year 2015-16)
  • 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/-(100000 wef 01.06.2016) 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 deducted  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 .
  3. No TDS on Transporter having 10 or less goods carriage on submission of PAN and declaration by transporter wef 01.06.2015.On other Transporter TDS is applicable as per section 194C i.e 1 or 2 % as the case maybe.
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 .
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Payments to contractors.(updated Finance act-2015)
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 where such contractor owns ten or less goods carriages at any time during the previous year and furnishes a declaration to that effect along with 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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. SECURITIES (MNP) (TDS)2007-08 ` 01.07.12 01.09.2008 01.10.2012 06.07.2009 07.08.2012 1 PERCENT EXCISE ITEMS LIST 1 sep 1% excise 10 year nsc 10(10C) 1000 court cases judgements supplied to ITO 1000 rupee note 11-2008 11-2010 130 items 14.08.2008 15 august 150 Rs coin 15g 15h 18-12-2009 192(1A) 192A 194 I 194A 194c from 01.10.2009 194H 194j 194LC 1981-2007 2% cst 2% excise 2004 2008 2008-09 FY 2010 206AA 234A 234B 234C 234c interest calculator 234E 23AC 23ACA 23B 24C 24q annexure II 25 paisa coin 271(1)(c) 271B 271H 272B 27A 280 280 challan 281 282 283 29 AUGUST 29.04.2010. 29/08/2008 29/2008 service tax 2g meaning use 3 idiots 30 MARCH 31st March 32-2010 33 of 2009 35(2AA) 35(2AB) 3CD 3g meaning use 40(b) 43B 44 AB EXEMPTED INCOME 44AA 44AB AGRICULTURE 44AB new limit 44AB NON RESIDENT 44ad 46/2012 45/2012 49C 5 day week 5 years post office deposit 5/2011 50 paisa coin 54b 54EC 54ee 54f 54gb 5th paycommission punjab 6 % excise 6 crore advance limit 6/2005 69/2010 6th cpc 6TH PAY COMMISSION 70% of pan etds 7th Central Pay Commission 8 tips to save tax 80C 80ccc 80CCD 80cce 80CCF 80CCG 80d 80DDB 80EE 80G 80GG 80GGA 80GGB 80ggc 80tta 80U 85% of pan etds 86/2008 DATED 13-08-2008 87A rebate 89(1) 89(1) relief calculator 9.5 % rate for private epf 92E 95% of pan etds 98 dated 04/01/08 aadhaar aakash tablet aam admi aar Aayakar Sampark Kendra abatement abolished ACCOUNT PAYEE DRAFT Accounting ACCOUNTING CODE accounting code for services ACCOUNTING FOR GOVT GRANTS accounting standards ACES ADD IN Add-Ins additional relief in budget 2010 adjustment of advance FBT with advance Tax advance rullings advance salary ADVANCE TAX CALCULATOR advance tax challan ADVANCE TAX CUT OFF AMOUNT ADVANCE TAX DATES AFFIDAVIT AG Projects Technologies Ltd RT age 80 addition pension aibea wage revision aibea wage revision latest news aiboa aiboc aiboc wage revision AIG AIR airline ticket booking tds airlines all is well allowances allownces alphabet of inspiration alteration on check allowed alternate minimum tax AMENDED 3CD amendment in companies bill 2011 amendment in gratuity act 2010 amendment in registration service tax AMENDMENT IN SERVICE TAX ON RENT amendment to finance Bill 2010 AMNESTY SCHEME 2007 amt Anna Hazare anna hazzare bill vs govt lokpal bill appeal apply for new pan card against old pan card aqb arbitration arrears of salary arrears of sixth pay ARRERS TAX AS-12 ASBA assessee in default ASSESSMENT REOPENING ASSESSMENT YEAR 2008-09 REFUND atm atm 100 per day atm cash without card atm tips atm wrong debit audit cases itr filing audit limit enhanced Audit Questionaire AUDIT REPORT AUS VS IND.INDIA VS SL Automated teller machine AUTOMATION OF CENTRAL EXCISE AND SERVICE TAX ay 2010-11 bad debts Bank Bank account bank audit bank audit 2012 bank charges BANK SALARY bank strike 06/07/09 and 07/07/09 banking law amendment banknotes banks npa provisioning BARE ACT bare rules BASE RATE BY BANKS bcct BIMAL JAIN biometric pan card black and white form not acceptable black money BLOCK PERIOD blogging bobay refund BONUS bonus share book discount BOOK ON EFILING BOOK REVIEW books of accounts BOOMING INDIAN ECONOMY both House rent allowance both hra and house loan Brass Scrap BRIBE CASE BROKER BSE bsnl broadband bsnl broadband usage bsnl land line sms alert BSR CODES BUDGET 2009 budget 2010 budget 2010-11 budget 2011 BUDGET 2012 budget 2013 BUDGET 2014 BUDGET 2014 CONTEST budget expectations BUDGET HIGHLIGHTS budget live on computer budget live telecast budget notification budget on tv budget speech BUDGET SPEECH DOWNLOAD Budget-2014 Budget-2015 BUDGET-2016