Tax Deducted at Source u/s 194C on payment to Contractors

Section 194 of Income Tax Act, 1961 is pertaining to Tax Deducted at Source of various payments, like salary, interest, winning from lottery or cross word puzzle or card games or other games, horse race, insurance commission, commission or brokerage, rent, fees for professional or technical services, royalty, payment of certain amount in cash etc.

Section 194C is for payment to contractors. Tax is to be deducted by the payer of the amount and amount of TDS is to be deposited in Government Treasury before specified dates. Who has to deduct tax?

01. Central Government or State Government

02. Local authority

03. Corporation established under Central or State Government

04. Company ( Public Limited or Private Limited)

05. Trust

06. Societies registered under Societies Act

07. Co Operative Societies

08. Firm

09. Any institution doing construction work

10. Any University established under Central, State or Local authorities

11. Any association or body established outside India or Foreign Government or Foreign Enterprise

12. From 1^st April, 2020, any individual or HUF entity whose total turnover of business in previous year exceeds rupees one crore or in case of professions gross receipt exceeds rupees fifty lakhs

13. Association of Persons / Body of Individual who are responsible for doing audit u/s 44AB(a)/(b)

Rate of TDS:

Under this Section 194C of the Act, payment is made to any individual or Hindu Undivided Family then at the rate of 1% and to any other person like Firm, Company etc. at the rate of 2% on the amount of payment. Please remember that if the payment is made for sub contract, the same rate is applicable.

From 1^st April, 2010, if Permanent Account Number(PAN) has not shown than at the rate of 20% TDS is to be made.

Amount of Contract:

If any payment for contract or sub contract made by single payment of Rs. 30,000 or more TDS is required to be deducted or during the Financial Year at different stage different amount is paid and it exceed Rs. 1,00,000 TDS is required to be deducted.

Illustration: If a partnership firm have made a payment of Rs. 40,000 by cheque to a contractor, tax is to be deducted i.e. Firm will issue cheque of Rs. 39,600 and Rs. 400 is to be deducted and deposited in the Government Treasury.  But If the  firm has issued cheque of Rs. 20,000, after 1 month another cheque of Rs. 15,000 and lastly cheque of Rs. 10,000, no tax is to be deducted.

What is Contract Work?

A contractor, make an agreement for contract with other person for doing a work, which include labor work but does not include sale or purchase of goods.

Following types of work will considered as contract:

01. Advertising

02.  Broadcasting and telecasting

03. Booking tickets of passengers for travelling by any mode except Railway.

04. Catering

Over and above some other categories are also there.

Different High Courts have given their view in this matter. The most important decision of Associates Cement Company  limited Vs. Income Tax Commissioner, 201 ITR 435 Supreme Court, informed that Any Work in this section is most important, it is not restricted to Construction Contracts only. On the base of this decision CBDT has issued Circular No 681 dated 8^th March 1994 which include all types of work, but unfortunately some High Courts have not accepted this circular and gave their different views.

• Labor Supply Contract: Any contract regarding labor for supply of goods is a contract.
• Private Bus owners contract with transport corporation for supply of Bus: As per CBDT Circular No 458 dated 20/03/1990 the persons of State Transport Corporation supply of Bus is a contract.
• Periodical Publication: Madras High Court have given their view in case of Income Tax Commissioner Vs. Kumudam Publications Pvt. Ltd. 188 ITR 84 that publication of Magazine is a contract.
• Catering Contract: As per Circular No 715 dated 8/8/1995 if the facilities of lunch or dinner is provided  within the Restaurant or Hotel is not considered as contract.
• Payment to Agency for booking of tickets of Railway, Bus or Flight: As per circular no 715 dt. 8/8/1995 no TDS is required as the booking is for particular person, but if the payment is made for contract of Bus TDS is necessary.