TDS on Payments to Contractors u/s 194C

TDS applies to contractor, subcontractor payments. Income Tax Act 1961 Section 194C. Learn more on who to deduct TDS from, applicability, rates, timing, returns.

This document covers

Persons responsible to deduct TDS
Rate of TDS
Threshold for deduction u/s 194C
Time of Deduction of TDS
Definition of Work u/s 194C
Non-Applicability of TDS u/s 194C
Due Date for TDS Payment
TDS Returns
Lower deduction /Nil deduction of TDS

1. Persons responsible to deduct TDS(Deductor)

Any person responsible for paying any sum to a resident contractor for carrying out any work in pursuance of a contract between the contractor and the specified persons as follows

The Central Government or any State Government
Any Local Authority
Any Statutory Corporation
Any Company
Any Co-operative Society
Any Statutory authority dealing with Housing Accommodation
Any Society registered under the Society Registration Act 1860
Any Trust
Any university established under Central, State or Provincial Act and an institution declared to be a university under the UGC Act 1956
Any Firm
Any Government of a foreign state or foreign enterprise or any association or body established outside India
Any Individual, HUF, AOP or BOI whose total sales or gross receipts or turnover from business exceeds Rs 1 crore and Rs 50 lakhs from profession during the financial year immediately preceding the financial year in which sum is paid to the contractor

NOTE : TDS u/s 194C needs to be deducted on the payments made to Resident Contractors. If the payee is non-resident, TDS u/s 195 applies.

2. Rate of TDS

If the Payee is Individual/HUF – TDS Rate is 1%
If the payee is Other than Individual/HUF – TDS rate is 2%

NOTE : The above rates apply to both contractors and sub-contractors

For Comprehensive Understanding, refer at @ TDS Rates

3. Threshold for deduction u/s 194C

TDS is not required to be deducted if the payment to a contractor or sub-contractor does not exceed Rs 30,000 in a single payment or Rs 1,00,000 in an aggregate during the financial year

Example : Mr Rama makes the following payments to Mr Bharat for the contract services rendered by him

Rs 25,000 on 01/06/2022, Rs 28,000 on 31/10/2022 , Rs 26,000 on 31/12/2022 and Rs 24,000 on 28/01/2023

Ans : Even though the individual payments to Mr Bharat is not exceeding Rs 30,000 per payment, the aggregate payments are exceeding Rs 1 lakhs on 28/02/2023. The total payments made to Mr Bharat is 1,03,000 and Mr Rama is required to deduct 1% TDS on Rs 1,03,000 at 1% from his last payment of Rs 24,000 on 28/02/2023

Payment on 28/02/2023-24000

TDS @ 1%- 1030

Payable on 28/02/2023- 22970

For Comprehensive Understanding, refer at @ Threshold for deduction

4. Time of Deduction of TDS

TDS u/s 194C needs to be deducted at the following times which ever is earlier

At the time of credit of amount to contractor
At the time of payment of amount to contractor

NOTE : TDS is not required to be deducted on the payments made to contractors or sub- contractors if it is exclusively for Personal Purposes.

Refer https://eztax.in/tds/tds-on-payments-to-resident-contractors-and-professionals for the applicability of TDS on payments for personal purpose.

5. Definition of Work u/s 194C

Work includes

Advertisement
Broadcasting and Telecasting including production of programmes for such broadcasting and 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 or its associate.

Note 1 : TDS shall be deducted on the invoice value excluding the material value supplied by customer or his associate provided that the material value is mentioned separately in the invoice. If material value is not mentioned, TDS needs to be deducted on the entire value .

Note 2 : Manufacturing or supplying a product according to the requirement or specification of customer but by purchasing raw material from the persons other than the customer does not come under contract. It is termed as Contract of sale and TDS u/s 194C does not apply.

Note 3 : Section 194C covers only Works Contracts and Labour Contracts. Section 194C does not cover Contracts for Sale of Goods

6. Non-Applicability of TDS u/s 194C

TDS u/s 194C is not required to be deducted on the payments made to contractors during the course of plying, hiring or leasing goods carriages, if the contractor furnishes his PAN to the deductor. However, the person needs to fulfil the following 3 conditions.

The person is engaged in the business of plying, hiring or leasing goods carriages.
The person owns 10 or less goods carriages at any time during the previous year.
The person has furnished a declaration to this effect along with his PAN

NOTE : If the PAN of contractor is not available, TDS @ 10% needs to be deducted u/s 194C

7. Due Date for TDS Payment

The due date for payment of TDS deducted u/s 194C is within 7 days from the end of the month in which deduction is made. However, for the March month, due date is April 30

8. TDS Returns

TDS Returns needs to be filed in Form 26Q
TDS Return filing is Quarterly
The due date for the TDS Returns are as follows
- April to June – July 31
- July to September- October 31
- October to December – January 31
- January to March – May 31
TDS Certificates needs to be issued within 15 days from the date of filing in Form 16A

9. Lower deduction /Nil deduction of TDS

The contractor or Sub contractor can apply for lower deduction or nil deduction of TDS in Form 13 and submit the certificate to deductor for non-deduction or lower deduction of TDS

For Comprehensive Understanding, refer at @ Lower deduction /Nil deduction of TDS