Section 194C: TDS on Contractors

Any person making payment to a resident person, who is carrying out any ‘work’ in terms of the contract between the ‘specified person’ and the resident contractor, is required to deduct TDS.

The ‘specified person’ mentioned above means the following :-

  • The Central or State Government;
  • The local authority;
  • The Corporation established by the Central, State or Provincial Act;
  • The Company;
  • The Trust;
  • The Co-operative Society;
  • The registered Society;
  • The authority engaged either for the purpose of dealing with and satisfying the need for the housing accommodation or for planning, improvement or development of cities, town and village;
  • The university established / incorporated by Central, State or Provincial Act;
  • The firm;
  • The Government of a foreign state / a foreign enterprise or any association / body established outside India;
  • The individual or HUF liable to audit under section 44AB [Clause (a) or Clause (b)] during the financial year immediately preceding the financial year in which the sum is credited or paid to the account of the contractor.

The term ‘work’ includes the following –

  • Advertising;
  • Carriage of goods / passengers by any mode of transport except railway;
  • Broadcasting and telecasting (which also includes the production of programmes for such broadcasting or telecasting);
  • Catering;
  • Manufacturing / supplying a product based on the requirement and specification of customers by using material purchased from the customer. However, it doesn’t include when the material is purchased from any person other than the customer.

Rate of TDS:-

When provisions of section 194C of the Income Tax Act gets attracted, the Deductor is required to deduct TDS at the following rates :–

Particulars Rate of TDS
Payment made / credited to an individual or HUF 1%
Payment made / credited to a person other than an individual or HUF 2%

However, in case the PAN is not furnished, the Deductor would be liable to deduct TDS @ 20% i.e. at the maximum marginal rate.

Under the following circumstances, TDS is not required to be deducted :–

1. The amount paid or credited to the contractor in a single contract doesn’t exceed INR 30,000.

2. The aggregate amount paid or credited during the financial year doesn’t exceed INR 1,00,000.

3. The amount paid / credited to the account of the contractor engaged in the business of hiring, plying or leasing goods carriage, where the contractor doesn’t own more than 10 goods carriage at any time during the previous year. The Contractor is required to furnish the declaration along with the PAN to the Deductor.

4. The amount is paid or credited to the contractor by an individual / HUF for carrying out work in the nature of personal use.

Time of deduction of TDS :–

If the Deductor is required to deduct TDS as per provisions of section 194C of the Income Tax Act, then, the Deductor is required to deduct TDS within earlier of the following dates:

  • At the time of credit of sum to the account of the Contractor; or
  • At the time of payment in cash or cheque or draft or any other mode.

Due date of deposit of TDS :-

The Deductor is required to duly deposit the deducted TDS within following due dates –

Particulars Due dates
TDS payment for the months from April to February Within 7 days from the end of the month in which TDS is deducted
TDS payment for the month of March On or before 30th April
TDS payment to be done by Government Deductor (without production of challan) On the same day

Issuance of TDS certificate :–

The Deductor is required to issue TDS certificate in Form 16A within following due dates :–

Months Due date
April to June 15th August
July to September 15th November
October to December 15th January
January to March 15th June

Return filing requirements –

Every Deductor deducting TDS in terms of section 194C is required to file a quarterly return in Form 26Q within following due dates –

Months Due date
April to June 31st July
July to September 31st October
October to December 31st January
January to March 31st May

Important points :–

  • Value to be considered for TDS deduction in the case where work includes manufacturing / supply of product as per the specification of the customer by using the material purchased from the customer.

TDS would be deducted on :–

Particulars Value for TDS deduction
Price of the material indicated separately in the invoice Invoice value excluding the value of material
Price of the material not indicated separately in the invoice Total invoice value
  • Certain important clarification done by CBDT –
    • FD Commission and brokerage are not covered under section 194C.
    • Payment made to an electrician or payment made to a contractor for providing electrician service is covered under section 194C.
    • Payment made to courier covered under section 194C.
    • Payment made to travel agent or an airline for purchase of a ticket is not subjected to TDS under section 194C. However, if the plane, bus or any other mode is chartered, then TDS is liable to be deducted under section 194C.
    • Payment made to clearing and forwarding agents for the carriage of goods is liable to TDS under section 194C.

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