At the time of making any payment, TDS is required to be deducted by the person making the payment. The rate of TDS depends on the nature of payment made and in this article; we would be focusing on Section 194C which deals with TDS on Payment to Contractor & Sub-Contractor.
There are various other sections under which TDS is deducted on other types of payments and for TDS on such other types of payments kindly refer the following articles:-
- Section 192: TDS on Salary
- Section 194A: TDS on Fixed Deposit
- Section 194H: TDS on Commission/ Brokerage
- Section 194I: TDS on Rent
- Section 194IA: TDS on Property Sale
- Section 194J: TDS on Professional/ Technical Fees
- TDS on Recurring Deposit
Section 194C: TDS on Payment to Contractor
Any person responsible for paying any sum to a resident contractor for carrying out any work (incl. Supply of labor for carrying out any work) under a contract shall deduct TDS on payment to contractor under Section 194C at the time of such payment thereof in cash or by issue of cheque or draft or by whatever name called, whichever happens earlier.
The TDS on Payment to Contractor under Section 194C shall be deducted at the below mentioned rates:-
- 1% if the payment is being made to Individual or HUF
- 2% in all other cases (i.e. cases except payment to Individual or HUF)
TDS on Payment to Sub-contractor
If a payment is being made to any resident sub-contractor in pursuance of a contract with the sub-contractor for carrying out, or for the supply of labor for carrying out, the whole or any part of the work undertaken by the contractor, TDS shall be deducted @ 1% on the gross amount of receipt at the time of payment in cash or issue of cheque or by demand draft or through any other mode (whichever is earlier).
Minimum Amount of Payment for Deduction of TDS under Section 194C
If the payment that is being made to the contractor does not exceed Rs. 30,000, No TDS on payment to contractor is required to be deducted. However, if the total of all such payments made or to be made during a financial year exceeds Rs. 1,00,000; TDS shall be deducted under Section 194C at the rates mentioned above.
The criteria for minimum amount to be paid for TDS Deduction have been explained below with the help of a few exemplary cases:-
|Case||Particulars||TDS to be deducted or not|
|Case 1||Single contract of Rs. 30,000 in a year||No|
|Case 2||Two contracts of Rs. 30,000 each in the year||No|
|Case 3||Three contracts of Rs. 30,000 each in the year||Yes, TDS to be deducted on Rs. 90,000|
|Case 4||Single contract of Rs. 40,000 in a year||Yes|
|Case 5||Five contracts of Rs. 15,000 each in the year||No|
|Case 6||Six contracts of Rs. 15,000 each in the year||Yes, TDS to be deducted on Rs. 90,000|
The Amount of TDS Deducted on Payment to Contractor is required to be deposited with the Govt. before the due date of TDS Payment. A TDS Return is also required to be filed for the same stating the amount of TDS deducted, the TAN Number of the person making the payment, the PAN No. of the person receiving the payment etc.
- Due Date for TDS Payment and Interest on Late Payment
- Due Date for filing TDS Return Form
- How to file revised TDS Return
The person deducting the TDS on payment to Contractor is also required to issue Form 16A/ Form 16B at the end of the year for the amount of TDS deducted and deposited with the govt. The details of TDS deposited can also be checked by the person whose TDS has been deducted by checking the Form 26AS online.
Exceptions to deduction of TDS on payment to Contractor under Section 194C
In the following case, No TDS on payment to contractor is required to be deducted under Section 194C and the person responsible for making the payment can make full payment without deduction of any TDS:-
- If the payment is being made by a category of taxpayer who is not required to get their tax audit conducted under Section 44AB; No TDS on payment to contractor shall be deducted under Section 194C
- In case a payment is being made by an Individual or HUF for the personal use of such individual or a member of HUF, no TDS shall be deducted in such a case.
- If the payment is being made in the course of business of plying, hiring or leasing goods carriages, No TDS is required to be deducted if the sub-contractor does not own more than 10 goods carriages at any time during the year and furnishes a declaration to that effect along with his PAN No. to the person paying or crediting such payment.
- No TDS shall be deducted on payments made to travel agents or airlines for purchase of tickets for air travel.
- No TDS shall be deducted by Individuals or HUF’s if the amount paid is exclusively for the personal purpose of the individual/ HUF.
- No TDS should be deducted on Reimbursements which include No element of Profit.
- In case of Franchise Agreements, there would be no obligation to deduct TDS under Section 194C
Who is required to deduct TDS under Section 194C
As per explanation to Section 194C, the following specified persons shall be required to deduct TDS:-
- An Individual or HUF whose books are audited under Section 44AB in the immediately preceding Financial Year.
- Any Partnership Firm, LLP or Company
- Any Central or State Govt
- Any Local Authority
- Any Corporation established by or under a CEntral, State or Provisional Act
- Any Co-operative Society
- Any University or Deemed University
- Any Trust
- Any Society registered under the Societies Registration Act
- Any Govt of a Foreign State or Foreign Enterprise r any association or body established outside India
- Any authority constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the needs of the housing accommodation or for the purpose of planning, development or improvement of cites towns and villages or both (Eg: HUDCO)
What does Work mean for the purpose of Section 194C?
Work shall include:-
- 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
- Manufacturing or Supplying a product according to the requirement or specification of a customer by using a 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 a material purchased from a person other than such customer.
Other Relevant Points regarding Section 194C
- TDS shall not be deducted on the GST Component comprised in the amount payable to a resident. [Circular 23/2017 dated 19th July 2017]
- Any person receiving such income liable to TDS Deduction under Section 194C can make an application to the assessing officer for Lower Deduction of TDS. Refer: Application for Lower Deduction of TDS