Applicability of section 194C:
Section 194C deals with the provisions for tax deduction at source at the time of payment to contractors/sub-contractors.
This section says that any person who pays money to the resident contractor (or subcontractor) for carrying out any work (including the supply of labor) is required to deduct tax on such payment. The above condition also requires the existence of a contract between contractor and contractee.
Who is required to deduct TDS u/s 194C:
(a) the Central Government or any State Government; or
(b) any local authority; or
(c) any corporation established by or under a Central, State or Provincial Act; or
(d) any company; or
(e) any co-operative society; or
(f) 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; or
(g) 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; or
(h) any trust; or
(i) 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); or
(j) any Government of a foreign State or a foreign enterprise or any association or body established outside India; or
(k) any firm; or
(l) any person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, if such person,—
(A) does not fall under any of the preceding sub-clauses; and
(B) [has total sales, gross receipts or turnover from business or profession carried on by him exceeding one crore rupees in case of business or fifty lakh rupees in case of profession] during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor.
Services Covered under Section 194 C:
(a) advertising;
(b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting;
(c) carriage of goods or passengers by any mode of transport other than by railways;
(d) catering;
[(e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer or its associate, being a person placed similarly in relation to such customer as is the person placed in relation to the assessee under the provisions contained in clause (b) of sub-section (2) of section 40A,]
but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer or associate of such customer].
Limits for Section 194 C:
| Particulars | Amount |
|---|---|
| Single payment of a contract | Exceeds Rs. 30,000 |
| Aggregate payment of a contract | Exceeds Rs. 1,00,000 |
TDS Rate applicable:
a) 1% (when payment is given to Individual/HUF) or
b) 2% (when given to others).
Where Section 194 C is not applicable:
- The amount of payment made to the contractor in a single contract which does not exceed Rs. 30,000. If the aggregate amount of such contracts in a financial year exceeds Rs. 1,00,000 then TDS will be deducted.
- When any amount is paid to the contractor by an individual or HUF for carrying out work in the nature of personal use.
- When payment is made to a goods transport agency (in the business of plying, hiring or leasing goods) which owns 10 or fewer carriages at any time during the previous year. Also, the contractor has to submit a declaration of above along with PAN.
- If payment is made to a non-resident contractor or sub-contractor.
Important Points:
- TDS Shall be deducted at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier.
- Where any sum referred to in Point (1) above is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
- Where any sum is paid or credited for carrying out any work mentioned in above under services covered in this section, tax shall be deducted at source—
(i) on the invoice value excluding the value of material, if such value is mentioned separately in the invoice; or
(ii) on the whole of the invoice value, if the value of material is not mentioned separately in the invoice.