The complete guide about TDS on Contractor or Sub-Contractors under Section 194C is as follows. Read the complete article to know TDS rates, eligible persons to deduct TDS on payment to Contractor, Time of Deduction, Exemptions /cases when TDS not Deductible on Contractor or Sub-contractor, Work Contracts under Section 194C etc.
TDS on Contractor or Sub-Contractor
Any person who is responsible for paying any sum to a contractor or sub-contractor is required to deduct tax at source for carrying out any work. Under section 194C of Income Tax Act, 1961, TDS is to be deducted only if the payment is made for carrying out a contract between Specified Person and the Resident Contractor.
Eligible persons to deduct TDS on Contractor or Sub-Contractor
The persons who are eligible to deduct TDS on Contractor / Sub-contractor or the ‘Specified Persons’ mentioned above are as follows.
- The Central or any State Govt; or.
- Any local authority; or
- Any corporation established by or under a State, Central, or Provincial Act; or
- Any Company; or
- Any Co-operative society; or
- Any authority constituted in India by or under any law, engaged either for the purpose of planning, development or improvement of cities, towns, and villages or both or for the purpose of dealing with and satisfying the need for housing accommodation;
- Any society registered under the Societies Registration Act, 1860 or under any law equivalent to that Act in force in any part of India; or
- Any trust; or
- Any university incorporated or established by or under a State, Central, or Provincial Act and an institution declared to be a University u/s 3 of the University Grants Commission Act, 1956; or
- Any Foreign Govt or a foreign enterprise or any body or association established outside India (applicable from October 1, 2009); or
- Any Firm; or
- Any individual or HUF whose books of account are required to be audited under section 44AB(a)/(b) during the immediately preceding (before) FY and sum credited/paid is not exclusively for personal purposes; or
- W.e.f June 1, 2008, AOP/BOI whose books of account are required to be audited under section 44AB(a)/(b) during the immediately preceding (before) FY (financial year).
Time of Deduction of TDS from Payments to Contractors or Sub-Contractors
TDS is to be deducted either at the time of Credit or at the time of payment thereof in cash or cheque or by any other mode, whichever is earlier.
Exemptions under Section 194C
Following are the cases when TDS is not Deductible on payment to Contractors or Subcontractors.
- TDS is not applicable when the amount paid or credited to a contractor or sub-contractor doesn’t exceed Rs. 30,000 in a single payment. The aggregate of the amounts of such sums credited or paid during the FY (Financial Year) does not exceed Rs. 75,000.
- If a recipient is a transport contractor and satisfies the following conditions, TDS is not deductible
- Recipient furnishes his PAN to the deductor.
- Recipient owns 10 goods carriages at any time during the FY (financial year). He gives a declaration to this effect to the deductor. Besides, he furnishes his PAN to the deductor. Deductors/Payers who make payments to transporters without deducting TDS will be required to intimate these PAN (Permanent Account Number) details to the IT Department in the prescribed format.
- Payment by an individual or HUF to a resident contractor for personal purposes is not subject to tax deduction.
- TDS is not deductible under section 194C during June 1, 2005, and September 30, 2009, if the following conditions are satisfied.
- Consideration for work contract is payable or paid by a resident contractor to a sub-contractor who is a resident.
- The resident Sub-Contractor is an individual.
- The amount mentioned above is paid or payable to the resident sub-contractor during the course of business of plying, hiring, or leasing goods carriages.
- The resident sub-contractor does not own more than 2 goods carriages at any time during the Previous year.
- The resident subcontractor submits a declaration to the payer in Form No. 15-I.
TDS Rates for Contractors under Section 194C
W.e.f October 1, 2009, the following TDS rates will be applicable under section 194C. The rates for TDS on Contractor varies for individual/HUF and others as shown below.
- If the recipient is an individual / HUF = 1%.
- If the recipient is any other person = 2%.
- There is no surcharge, education cess or secondary and higher education cess under section 194C.
- If the recipient (maybe an individual, company, firm, or any other person) does not furnish his PAN to the deductor, TDS will be deducted at the rate of 20%.
Work Contract under Section 194C
The works that include as a contract under Section 194C is as follows.
- Advertising Contract.
- Carriage of goods & passengers by any mode of transport except the railway.
- Labor supply for a work contract
- Manufacturing or supplying a product according to the specification or requirement of a customer by using material purchased from the customer.
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