Section 194C TDS on Contracts : Rates, Who is required to deduct?

TDS on payment to contractors Under Section 194C, Section 194c – TDS on Contracts, Payment To Contractor And Sub-Contractor [ Section 194C].

Section 194c – TDS on Contracts (Latest)

Now the questions which might come to our minds are as follows:

  • For carrying out any work (including supply of labour) in pursuance of a contract
  • TDS should be deducted at the time of credit or payment, whichever is earlier
  • No TDS for payment by individual/HUF for personal purpose
  • 1% where payee is individual/HUF and 2% for other payees
  • No TDS where contractor is in transporter business (goods), PAN furnished and owns =<10 carriages
  • No TDS where single contract < 30,000
  • TDS deductible where single payment < 30,000 but FY aggregate > 1,00,000

Work includes:

  • Advertising, 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 of a customer by using his material. If material, procured from other person, it will not be counted as work, as it will be a contract for sale.
  • TDS on invoice value, excl. material purchased from customer, if mentioned separately

TDS on gas transportation charges, whether shown separately in invoice or not:

  • Seller sells as well as transports: It remains a contract for sale. No TDS.
  • Transportation charges paid to third party: TDS applicable

Payment for production of content as per the specifications of the broadcaster and copyright also gets transferred to the broadcaster. 194C TDS applicable. Not applicable where only broadcasting rights are sold. Other Section.

No TDS u/s 194C for payment by advertising agency to the television channel/newspaper company

What is the rate at which Tax is required to be deducted?

The answer is as follows:

  • When the payment is being made to an individual or a Hindu Undivided Family, the TDS rate is 1%.
  • Where as in the case of any other entity except for individual & HUF, the TDS rate is 2%.
  • The above rates are applicable only when the entity receiving entity has quoted his PAN No.
  • Also, in the case of transporters, No TDS has to be deducted if the transporter quotes his PAN No.
  • Education Cess or Surcharge is not levied on these rates. Thus, deduction is done at the basic rate.

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So what will be the rate if the PAN No. is not quoted?

If the PAN No. has not been quoted by the receiving entity, the person making the payment needs to deduct TDS @20%.

The higher rate of TDS is made applicable if the PAN is not quoted by the deductee with effect from 01/04/2010.

So, are there any slabs or tax is deducted on the entire amount?

If there exists a single payment which does not exceed Rs. 30,000/- or the entire payments for the year do not exceed Rs. 75000/-, then no tax is required to be deducted.

However, if the amount exceeds the above mentioned amount, then the tax is required to be deducted on the entire amount & no basic limits are to be provided.

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Is section 194C applicable to NR contractors also?

The section is applicable to only resident contractors.

In the case of Non Resident Contractors, section 195 is applicable.

Who is required to deduct TDS?

The Income Tax Act says, only ‘Specified Persons’ are required to deduct TDS. So, let us have a look on the definition of Specified Persons:

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Specified Persons include:

  • the Central or State Government;
  • any local authority;
  • any corporation established by or under a Central, State or Provisional Act;
  • any company;
  • any co-operative society;
  • any authority constituted in India by or under any law, engaged either for the purpose of dealing with the satisfying the needs 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 or under any such corresponding law;
  • any trust;
  • any university or deemed university;
  • any government of a foreign state or foreign enterprise or any association or body established outside India;
  • any firm;
  • any person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, whether incorporated or not other than those falling under any of the preceding clauses, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified 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.

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At what time is TDS required to be deducted?

TDS is required to be deducted at the time of payment to the deductee or credit to his account, whichever is earlier.

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