TDS ON PAYMENT TO CONTRACTOR SECTION 194C AT A GLANCE

Basic : Payments to contractor - Section 194C applies to a person who is responsible for  “paying any sum to a contractor or sub-contract...

Basic :Payments to contractor -Section 194C applies to a person who is responsible for “paying any sum to a contractor or sub-contractor”. Such contractor or sub-contractor should be a resident in terms of section 6 of the I.T . Act, 1961. 

Time of Deduction : As per Section 194C the payer is enjoined to deduct tax at source at the time of credit of any sum to the account of contractor or at the time of payment either in cash or by cheque or draft which ever is earlier .

Even where the credit is made in any account called “Suspense Account” or in the books of account of the person liable to pay such income, such credit will be deemed to be in the account of payee (contractor or sub-contractor as the case may be) and deduction of tax will have to be made.

Nature of Payment To contractor :The deduction is to be done for payment for carrying out any work(including supply of labour) in pursuance of a contract between the contractor and a specified person . 

Job work :Where any sum is paid or credited for carrying out any work pertaining to manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased by such customer , then the tax is to be deducted at source ;

1. On the invoice value excluding the value of material, if such value is mentioned separately in the invoice; or 
2. On the whole of the invoice value, if the value of the material is not mentioned separately in the invoice.

Read More On TDS on Job Work with or without providing Material to contractor 

TDS rate : The deduction is to be made at the following rates :(applicable from 01.10.2009 ) (also applicable in Financial year 2015-16)

• 1% where payment/credit is to an individual/HUF .(check Forth Digit of Pan of contractor "P" or "H")
• 2 % where recipient is any other person.
• No cess and surcharge on Basic TDS rates given above on payment made to Residents .

TDS without PAN : If Pan has not been provided by the deductee, then TDS must be deducted @ 20% u/s 206AA. (read Section 206AA in detail)

Cut off amount :If the credit or the payment in pursuance of the contract does not exceed Rs.30,000/-, no deduction has to be made at source. However , if the aggregate of all amounts paid/credited or likely to be paid/credited exceeds Rs. 75,000/-(100000 wef 01.06.2016) then tax at source is to be deducted.

Due date of Deposit: Before 7th of Next month , However if deposit by Book Adjustment by Govt department then on same day.Tax deducted in the Month of March due date is April 30th.

Exemption -

1. Individual /HUF personal Purpose :No TDS to be deducted  by an Individual or an HUF on a contractual payment of work which is for personal purposes of the individual or the HUF .
2. No TDS on Transporter :No deduction is to be made for sum credited/paid to a contractor during the course of business of plying/hiring/leasing of good/carriages on furnishing Pan to the payer/ deductor .
3. No TDS on Transporter having 10 or less goods carriage on submission of PAN and declaration by transporter wef 01.06.2015.On other Transporter TDS is applicable as per section 194C i.e 1 or 2 % as the case maybe.

Person responsible to deduct Tax

1. Central Government or any State Government;
2. Local authority; or
3. Corporation established by or under a Central,State or Provincial Act; or
4. Company ; or
5. Co-operative society ; or
6. 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
7. 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
8. trust; or
9. University established or incorporated by or under a Central S tate or Provincial Act and an institution declared to be university under section 3 of the University Grants Commission Act, 1956(3 of 1956); or 
10. Government of a foreign State or a foreign enterprise or any association or body established outside India; or 
11. Firm; or 
12. Person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, if such person -
• does not fall under any of the preceding sub clauses; and 
• is liable to audit of accounts under clause (a) or clause (b) of section 44 AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor;

No TDS by Individual /HUF in First year of Operation of business in any case:A sole proprietor or an individual is supposed to deduct tax under sections 194A, 194C and 194J if his books of account are required to be audited under section 44AB in the immediately preceding financial year. 

So no Tds is required to be deducted in First year of Business by Individual /HUF as there is no preceding year and books of account are not required to be audited under section 44AB in immediately preceding year.

Goods carriage’ shall have the meaning assigned to it in the Explanation to sub-section(7) of the section 44AE;

‘contract’ shall include sub-contract ;

Meaning of Work  ‘work’ shall include 

• advertising;
• Broadcasting and telecasting including production of programmes for such broadcasting or 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 , 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 .

Other Related Links

1. TDS rates for All section for Resident Payee for Financial year 2015-16 Available here
2. TDS -TCS Changes applicable WEF 01.06.2015
3. TDS rate on Hire charges of taxi u/s 194C or 194 I
4. TDS on cold storage u/s 194C or 194I
5. TDS ON CONTRACTOR- 194C CIRCULARS OLD REFERENCE

Complete Section is given below.

Payments to contractors.(updated Finance act-2015)

194C. (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, 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, deduct an amount equal to—

               (i)   one per cent where the payment is being made or credit is being given to an individual or a Hindu undivided family;

             (ii)   two per cent where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family,

of such sum as income-tax on income comprised therein.

(2) Where any sum referred to in sub-section (1) 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.

(3) Where any sum is paid or credited for carrying out any work mentioned in sub-clause (e) of clause (iv) of the Explanation, 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.

(4) No individual or Hindu undivided family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family.

(5) No deduction shall be made from the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor, if such sum does not exceed thirty thousand rupees :

Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds seventy-five thousand rupees, the person responsible for paying such sums referred to in sub-section (1) shall be liable to deduct income-tax under this section.

(6) 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, on 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.

(7) The person responsible for paying or crediting any sum to the person referred to in sub-section (6) shall furnish, to the prescribed income-tax authority or the person authorised by it, such particulars, in such form and within such time as may be prescribed.

Explanation.—For the purposes of this section,—

               (i)   “specified person” shall mean,—

        (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)   is liable to audit of accounts under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor;

             (ii)   “goods carriage” shall have the meaning assigned to it in the Explanation to sub-section (7) of section 44AE;

            (iii)   “contract” shall include sub-contract;

            (iv)   “work” shall include—

        (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,

                      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.]