ØSection 194C of the Income Tax Act states that any person making payment to a resident person, who is carrying out any ‘work’ in terms of the contract between the ‘specified person’ and the resident contractor, is required to deduct TDS.
Meaning of Term Work
ØAdvertising and Catering.
ØCarriage of goods/passengers by any mode of transport except railway.
ØBroadcasting and telecasting (which also includes the production of programmes for such broadcasting or telecasting).
ØManufacturing / supplying a product based on the requirement and specification of customers by using material purchased from the customer. However, it doesn’t include when the material is purchased from any person other than the customer.
Meaning of Specified Person
ØThe Central or State Government and The local authority.
ØThe Corporation established by the Central, State or Provincial Act.
ØThe Company, The Trust and The Co-operative Society.
ØThe Firm and The Registered Society.
ØThe authority engaged either for the purpose of dealing with and satisfying the need for the housing accommodation or for planning, improvement or development of cities, town and village;
ØThe university established/incorporated by Central, State or Provincial Act;
ØThe Government of a foreign state / a foreign enterprise or any association/body established outside India;
The individual or HUF liable to audit under section 44AB [Clause (a) or clause (b)] during the financial year immediately preceding the financial year in which the sum is credited or paid to the account of the contractor.
TDS on Contractor Sec 194C
ØRate of TDS u/s 194C : When provisions of section 194C of the Income Tax Act gets attracted, the Deductor is required to deduct TDS at the following rates –
- Old 0.75% and New 1% Payment made/credited to an individual or HUF.
- Old 2% and New 1.5% Payment made/credited to a person other than an individual or HUF
ØTime of deduction of TDS u/s 194C : If the Deductor is required to deduct TDS as per provisions of section 194C of the Income Tax Act, then, the Deductor is required to deduct TDS within earlier of the following dates –
- At the time of credit of sum to the account of the Contractor or
- At the time of payment in cash or cheque or draft or any other mode.
- However, in case the PAN is not furnished, the Deductor would be liable to deduct TDS @ 20% i.e. at the maximum marginal rate.
Certain important clarification done by CBDT
ØFD Commission and brokerage are not covered under section 194C.
ØPayment made to an electrician or payment made to a contractor for providing electrician service is covered under section 194C.
ØPayment made to courier covered under section 194C.
ØPayment made to travel agent or an airline for purchase of a ticket is not subjected to TDS under section 194C. However, if the plane, bus or any other mode is chartered, then TDS is liable to be deducted under section 194C.
ØPayment made to clearing and forwarding agents for the carriage of goods is liable to TDS under section 194C.
Exemption cases wherein TDS not to be deducted u/s 194C
ØThe amount paid or credited to the contractor in a single contract doesn’t exceed INR 30,000.
ØThe aggregate amount paid or credited during the financial year doesn’t exceed INR 1,00,000.
ØThe amount paid/credited to the account of the contractor engaged in the business of hiring, plying or leasing goods carriage, where the contractor doesn’t own more than 10 goods carriage at any time during the previous year. The Contractor is required to furnish the declaration along with the PAN to the Deductor.
Regards
Compiled by Ca Sunil Sakral
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