Introduction: Under the existing provisions of section 194C of the Act, payment to contractors is subject to Tax Deduction at Source (TDS) at the rate of 1% in case the payee is an individual or Hindu Undivided Family and at the rate of 2% in case of other payees, if such payment exceeds Rs. 30,000 per contract or aggregate of such payments of contracts in a financial year exceeds Rs. 75,000.
Current provision for transporter is non-deduction of tax from payments made to the contractor during the course of plying, hiring and leasing goods carriage if the contractor furnishes his PAN to the payer. Intention behind this provision was to exempt only small transport operators from the purview of TDS on furnishing of PAN, but it does not convey the desired intention and as a result all transporters (irrespective of size) are claiming exemption from TDS.
Now the provision of section 194C of the Act has been amended to expressly provide that the relaxation from no-deduction of tax shall only be applicable to the payment in the nature of transport charges made to a contractor who is engaged in the business of transport i.e. plying, hiring, or leasing goods carriage and a person who is not owing more than 10 goods carrige at any time during the previous year and who has furnished a declaration to this effect along with his PAN.
Intent of the amendment:
The Memorandum explaining the provisions of Finance (No.2) Bill 2009 indicates that the intention was to exempt only small transport operators (as defined in section 44AE of the Act) from the purview of TDS on furnishing of Permanent Account Number (PAN). Thus the intention was to reduce the compliance burden on the small transporter. However, the current language of sub-section (6) of section 194C of the Act does not convey the desired intention and as a result all transporters, irrespective of their size, are claiming exemption from TDS under the existing provision of sub-section (6) of section 194C of the Acton furnishing of PAN
This means if a transporter is owing more than 10 goods carriage at any time during the previous year, then payer is liable to deduct TDS at the time of paying charges to goods transporter at the rate of 1% or 2% as the case may be, and
If transporter is not owing more than 10 goods carriage at any time during the previous year, then payer(Tax deductor) has to obtain a declaration from transporter along with his copy of PAN before execution of the contract or payment to transporter whichever is earlier.
This amendment is inserted with effect from the 1st day of June 2015.