Section 194C of the Income Tax Act, 1961, deals with the deduction of tax at source (TDS) on payments made to contractors. The section applies to payments made to resident contractors for carrying out any work (including the supply of labour) in pursuance of a contract between the contractor and a specified person.
Who has to Deduct-
The specified persons who are required to deduct TDS under Section 194C include:
The Central Government or any State Government
Any local authority
Any corporation established by or under a Central, State, or Provincial Act
Any co-operative society
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 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.
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).
Any Government of a foreign State or a foreign enterprise or any association or body established outside India.
However, an individual or a HUF Hindu undivided family or an AOP association of persons or a BOI body of individuals, who:
does not fall under any of the above and
The total sales, gross receipts, or turnover from business or profession exceeds Rs 1 crore (business income) or Rs 50 lakh (professional income). The limit is applicable on income earned during the financial year immediately preceding the financial year in which a payment is credited or paid to the account of the contractor.
Deduction in which cases-
The term “work” for the purpose of Section 194C of Income Tax Act, 1961 includes the following:
broadcasting and telecasting including production of programs for such broadcasting or telecasting;
carriage of goods or passengers by any mode of transport other than by railways;
Manufacturing or supplying a product according to the requirement or specification of a customer.
Such manufacturing or supplying a product is done by using material purchased from such a customer or its associate. However, Section 194C is not applicable if the contractor manufactures or supplies a product according to the requirement or specification of the customer. Such manufacture and supply is done by using material that is purchased from a person who is neither the customer himself/ herself nor his/ he associate. Simply speaking if the work of manufacturing is in the nature of job work where in material is provided by the customer then only the same shell come under the purview of Section 194C. Weather manufacturer goods on the basis of specification provided by the customer by purchasing materials from a 3rd party the same is technically considered as sale of goods rather than a contract work.
At this juncture it is also important to note that the list provided above is not a exhaustive one. Section provides an inclusive definition of the word “work” and therefore any activity of similar nature would fall under the embedded of Section 194C. For example, providing building construction services is not specifically mentioned in the inclusive definition of work but the same shall be liable to deduction of TDS under this section.
Rate of TDS-
The TDS rate under Section 194C is as follows:
1% for payments made to an individual or a HUF
2% for payments made to any person other than an individual or a HUF*
If the person does not quote his/ her PAN to the deductor then the deductor must deduct TDS at a rate of 20%
*rate prescribed above should not be increase by Surcharge or Cess.
Cases where deduction is not necessary-
The following is the limit applicable under Section 194C to deduct TDS:
The amount paid or credit is a single contract that exceeds Rs 30,000
The amount paid or credit during the financial year altogether exceeds Rs 1,00,000.
However, It is pertinent to note, that 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, 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.
For the purpose of Section 194C, goods carriage has the meaning as defined in section 44AE. The definition of goods carriage under section 44AE is as follows:
Goods vehicle, goods carriage, or heavy goods vehicle shall have the meaning as assigned to each term under section 2 of the Motor Vehicles Act, 1988 (59 of 1988).
Section 2 of the Motor Vehicles Act, 1988 (59 of 1988) defines goods carriage as any motor vehicle that is constructed or adapted for use solely for the carriage of goods, or any motor vehicle not so constructed or adapted when used for the carriage of goods.
Lastly, a heavy goods vehicle is any goods carriage, a tractor, or a road-roller whose gross unladen weight exceeds 12,000 kilograms.
List of Circulars issued from Central Board of Direct Taxes regarding TDS issued from time to time .
Circular No. 433 dated 25/09/1985
Circular No. 487 dated 08/06/1987
Circular No. 502 dated 27/01/1988
Circular No. 558 dated 28/03/1990
Circular No. 681 dated 08/03/1994
Circular No. 713 dated 02/08/1995
Circular No. 714 dated 03/08/1995
Circular No. 715 dated 08/08/1995
Circular No. 723 dated 19/09/1995
Circular No. 13/2006 dated 13/12/2006
Circular No. 9 of 2012 dated 17/10/2012
Circular No. 4 of 2016 dated 29/02/2016.
What is the due date to deposit the TDS deducted?
You must deposit the TDS deducted on or before the following due date:
What is the due date for the issuance of the TDS certificate?
The following is the due date for issuing TDS Certificate Form 16A by the deductor of TDS:
CA Pranay Jain is a young and aspiring Chartered Accountant. He qualified Chartered Accountancy Course in 2021 and has a well-established practice in various fields of taxation and auditing, with his core area of practice being in the field of litigation i.e., handling assessment and appeal-related matters and representing assesses before various tax departments.
He is also socially active on LinkedIn at linkedin.com/in/capranayjain
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