Under the existing provisions of section 194C of the Act payment to contractors is subject to tax deduction at source (TDS) at the rate of 1% in case the payee is an individual or Hindu undivided family and at the rate of 2% in case of other payees if such payment exceeds Rs. 30,000 or aggregate of such payment in a financial year exceeds Rs. 75,000(Limit increased to One Lakh wef 01.06.2016) . Prior to 1.10.2009, section 194C of the Act provided for exemption from TDS to an individual transporter who did not own more than two goods carriage at any time during the previous year. Subsequently, Finance (No.2) Act, 2009 substituted section 194C of the Act with effect from 1.10.2009, which inter alia provided for non- deduction of tax from payments made to the contractor during the course of plying, hiring and leasing goods carriage if the contractor furnishes his Permanent Account Number (PAN) to the payer.
The memorandum explaining the provisions of Finance (No.2) Bill, 2009 indicates that the intention was to exempt only small transport operators (as defined in section 44AE of the Act) from the purview of TDS on furnishing of Permanent Account Number (PAN). Thus, the intention was to reduce the compliance burden on the small transporters. However, the current language of sub-section (6) of section 194C of the Act does not convey the desired intention and as a result all transporters, irrespective of their size, are claiming exemption from TDS under the existing provisions of sub-section (6) of section 194C of the Act on furnishing of PAN.
As there is no rationale for exempting payment to all transporters, irrespective of their size, from the purview of TDS, it is proposed to amend the provisions of section 194C of the Act to expressly provide that the relaxation under sub-section (6 ) of section 194C of the Act from non-deduction of tax shall only be applicable to the payment in the nature of transport charges (whether paid by a person engaged in the business of transport or otherwise) made to an contractor who is engaged in the business of transport i.e. plying, hiring or leasing goods carriage and who is eligible to compute income as per the provisions of section 44AE of the Act (i.e a person who is not owning more than 10 goods carriage at any time during the previous year) and who has also furnished a declaration to this effect along with his PAN.
This amendment will take effect from 1st June, 2015.
Specimen of Declaration under Section 194C(6) for Non-deduction of Tax at Source
"the payer" (Write the name of the person who is making payment of Transport Charges)
I, Mr. _____________, Proprietor/Partner/Director ** of M/s ______________ (Name of the Transport Company) Address _______________ (hereinafter “the contractor”) do hereby make the following declaration as required by sub section (6) of Section 194C of the Income Tax Act, 1961 for receiving payments from the payer without deduction of tax at source,:
1. **That I/We am/are authorized to make this declaration in the capacity as Proprietor/Partner/Director..
2. That the contractor is engaged by the payer for playing, hiring or leasing of goods carriage for its business.
3. That the contractor does not own more than ten goods carriage as on date of this declaration.
4. That if the number of goods carriages owned by the contractor exceeds ten at any time during the previous year 2015-16 (01-06-2015 to 31-03-2016) , the contractor shall forthwith, in writing intimate the payer of this fact.
5. That the Income Tax Permanent Account Number (PAN) of the contractor is _______________. A photocopy of the same is furnished to the payer along with this declaration.
6. If any time during the year number of goods carriages owned by the contractor exceeds ten at any time during the previous year 2015-16 (01-06-2015 to 31-03-2016), the payer is authorized to deduct appropriate tax at source u/s. 194C of the Income Tax Act, 1961 and debit and recover the same from amount payable to me/us in the eventuality that no amounts remain payable to us, then we shall immediately repay the tax deducted against our transportation charges the payer.
I the above named declarant do hereby verify that the contents of paragraphs one to five above are true to my own knowledge and belief and no part of it is false and nothing material has been concealed in it.
Dated: Name of the Declarant along with Rubber Stamp
** Strike out which is inapplicable.