Section 194C of Indian Income Tax Act

Section 194C

U/ Section 194C of the Income Tax Act, 1961 any person responsible for making any payment to an Indian resident contractor for carrying out any work, is liable to deduct TDS at the time of credit or at the time of making such payment, whichever is earlier. This section is also applicable to a sub-contractor and any contractor supplying labor to carry out any work.

Section 194C of Income Tax Act

If any individual is liable for making payment to a resident contractor for carrying out any work including the supply of labor, in pursuance of a contract between the contractor and;

  • The central government or state government
  • Any local authority
  • Any corporation established by central, state or provincial act
  • A company
  • Any co-operative society
  • Any society registered under the societies registration act, 1860 or under any law corresponding to that act
  • A firm
  • Any trust
  • 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
  • Any university established or incorporated by or under a central, state or provincial act and an institution declared to be a university U/S 3 of the university grants commission act, 1956
  • Any person, being an individual or HUF or an association of persons or a body of individuals, if such person
    – Does not fall under any of the preceding sub-clauses
    – Is liable to audit of accounts under clause (a) or clause (b) of section 44AB during the FY immediately preceding the FY in which such he credit/pays the sum to the account of the contractor

Then, he is liable to deduct TDS on payment of contract at the following rates:

  1. In case he credit/pays the amount to an individual or HUF, he has to deduct TDS @ 1% on the contract value.
  2. In case he credit/pays the amount to a person other than individual or HUF, he has to deduct TDS at 2% on the contract value.

He has to deduct tax even if he transfers the amount payable to resident contractor/subcontractor to “suspense account” in his books.

Rate of TDS U/S 194C

Particulars

TDS Rate

If PAN Furnished

If PAN Not Furnished

Resident Individual or HUF

1%

20%

Company, firm, LLP, or any other resident person other than individual/HUF

2%

20%

Transporters (up to 10 vehicles)

Nil

20%

Transporters (more than 10 vehicles)

1%/2% as per recipient status

20%

No surcharge or education cess is levied on payment to resident

However, an assessee can apply to assessing officer for no TDS or TDS at lower rate U/S 197.

Definition of ‘work’ as per this section:

As per section 194C, the term “work” includes the following:

  • Advertising
  • Broadcasting and telecasting including production of programs for such broadcasting or telecasting
  • Catering
  • Carriage of goods and passengers by any mode of transportation (other than railways)
  • Manufacturing or supplying products as per the requirement or specification of a customer by using materials purchased from such customer (except the products manufactured or supplied as the requirements or specification of a customer by using the materials purchased from a person, other than such a customer)

Exceptions to section 194C

This section is not applicable;

  • Where the total sales, gross receipts or turnover of an individual, HUF, AOP or BOI does not exceed Rs. 1 crore in case of business; and Rs. 25 lakhs in case of the profession; during the FY immediately preceding the FY in which such amount is credited or paid.
  • Where an individual or HUF pays any sum to a resident contractor for personal purposes.
  • If the recipient is a transport operator and owns ten or fewer goods carriages at any time during the financial year. However, he has to furnish a declaration to this effect to the person paying him to get such exemption.
  • Where a person make the payment to the bank listed in the 2nd schedule to the RBI act excluding foreign bank.
  • Where payment is made for purchasing products as per the payer’s requirement or specification.
  • If the sum is credited/paid before 1st June 1972.
  • Where a person credit/pays the sum to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, when the contractor furnishes his PAN, to the person paying or crediting such sum.

Definition of ‘sub-contractor’:

A sub-contractor refers to any person who agrees to be party to a contract involving a contractor, for the purpose of;

– Conducting either all or part of the work, which the contractor has agreed to undertake

– Supplying manpower for all or part of the work undertaken by the contractor

Under this section, the term “sub-contractor” includes any person, who enters into a contract with the contractor for carrying out part or whole of the work which the contractor undertakes under a contract with any of the authorizations or for supply of, whether partly or wholly, any labour which the contractor has undertaken to supply in terms of his contract with any of the authorizations specified under this section.

Conditions for TDS deduction U/ Section 194C

  • Payment must be made to an Indian resident; resident within the meaning of section 6 of the income tax act, 1961.
  • Payment must be made to conduct any form of work; which also includes the supply of workforce to conduct any kind of work.
  • The amount of the contract in respect to which payment is made; must not be less than Rs. 30000.
  • The aggregate amount of such sums credited/paid in the FY; must not be less than Rs. 1 lakh.
  • Payment must be made according to a contract whether oral or written between payer and payee.
  • The amount must be credited/paid by the contractor in respect of a contract undertaken by him with the specified bodies.
  • Where it was assumed that the total consideration would not exceed Rs. 30000 but if afterwards; it exceeds Rs. 30000; then tax will have to be deducted in respect of earlier payments also.

The payer has to deduct TDS from the sum paid to the contractor or sub-contractor if, any single sum credited/paid exceeds Rs. 30000 or total sum credited/paid exceeds Rs. 1, 00,000 during the FY.

This section does not apply to any contract of sale of goods or solely the supply of goods or products. It only applies to work contracts and labor contracts.

Time limit for deposit of tax

  1. In case of payment made by the government or on its behalf; the tax must be deposited on the very day the payment is made
  2. In case of payment made by non-government entity;
    – The tax must be deposited on or before 30th April, if the amount was paid to the contractor in March.
    – The tax must be deposited within seven days after the end of the month during which the deduction took place if the amount was paid in the month other than March.

If the assessing officer is satisfied that the total income of contractor/sub-contractor justifies the deduction of income-tax at any lower rate or non-deduction of income tax, the assessing officer will give him such certificate as may be appropriate.

Every person liable for deduction of tax from payments other than salary has to issue TDS certificates on a quarterly basis in form 16A by the following dates:

Months

Due Date

For non-government deductor

For government deductor

April to June

30th July

15th August

July to September

30th October

15th November

October to December

30th January

15th February

January to march

30th May

30th May

 

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