The present article briefly covers the important provisions relating to TDS section 194C of the Income Tax Act along with the Frequently Asked Question.

 Basic provisions of section 194C of the Income Tax Act –

Section 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.

The ‘specified person’ mentioned above means the following –

  • The Central or State Government;
  • The local authority;
  • The Corporation established by the Central, State or Provincial Act;
  • The Company;
  • The Trust;
  • The Co-operative Society;
  • The registered Society;
  • The 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;
  • The university established / incorporated by Central, State or Provincial Act;
  • The firm;
  • The 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.

Further, it is mention here that the term ‘contract’ includes ‘sub-contract’.

Explaining the meaning of the term ‘work’ –

The term ‘work’ includes the following –

  • Advertising;
  • Carriage of goods / passengers by any mode of transport except railway;
  • Broadcasting and telecasting (which also includes the production of programmes for such broadcasting or telecasting);
  • Catering;
  • Manufacturing / 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.

Rate of TDS –

When provisions of section 194C of the Income Tax Act gets attracted, the Deductor is required to deduct TDS at the following rates –

Particulars Rate of TDS
Payment made / credited to an individual or HUF 1%
Payment made / credited to a person other than an individual or HUF 2%

However, in case the PAN is not furnished, the Deductor would be liable to deduct TDS @ 20% i.e. at the maximum marginal rate.

List of exception i.e., cases wherein TDS not to be deducted –

Under the following circumstances, TDS is not required to be deducted –

1. The amount paid or credited to the contractor in a single contract doesn’t exceed INR 30,000.

2. The aggregate amount paid or credited during the financial year doesn’t exceed INR 1,00,000.

3. The 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.

4. The amount is paid or credited to the contractor by an individual / HUF for carrying out work in the nature of personal use.

Time of deduction of TDS –

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.

Due date of deposit of TDS –

The Deductor is required to duly deposit the deducted TDS within following due dates –

Particulars Due dates
TDS payment for the months from April to February Within 7 days from the end of the month in which TDS is deducted
TDS payment for the month of March On or before 30th April
TDS payment to be done by Government Deductor (without production of challan) On the same day

Issuance of TDS certificate –

The Deductor is required to issue TDS certificate in Form 16A within following due dates –

Months Due date
April to June 15th August
July to September 15th November
October to December 15th January
January to March 15th June

Return filing requirements –

Every Deductor deducting TDS in terms of section 194C is required to file a quarterly return in Form 26Q within following due dates –

Months Due date
April to June 31st July
July to September 31st October
October to December 31st January
January to March 31st May

Important points –

  • Value to be considered for TDS deduction in the case where work includes manufacturing / supply of product as per the specification of the customer by using the material purchased from the customer.

In such case, the TDS would be deducted on –

Particulars Value for TDS deduction
Price of the material indicated separately in the invoice Invoice value excluding the value of material
Price of the material not indicated separately in the invoice Total invoice value
  • Certain important clarification done by CBDT –
    • FD Commission and brokerage are not covered under section 194C.
    • Payment made to an electrician or payment made to a contractor for providing electrician service is covered under section 194C.
    • Payment made to courier covered under section 194C.
    • Payment 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.
    • Payment made to clearing and forwarding agents for the carriage of goods is liable to TDS under section 194C.

Question –

What is Section 194c?

Section 194c requires any person making payment to person, carrying out any work in accordance with a contract between a specified person and the resident contractor, to deduct TDS at the specified rates.

What is the limit to deduct TDS US 194c?

The Deductor is required to deduct TDS @1% in case the payment is made to individual or HUF and @2% in case of payment done to any other person.

What is TDS exemption limit for contractor and sub-contractor?

TDS exemption limit is INR 30,000 in case of a single contract and INR 1,00,000 in case of aggregate amount during the financial year.

What is TDS rate for contractor?

TDS rate for contractor is 1% in case payment is done to individual or HUF and 2% in any other case.

Also Read-

Particulars
TCS – Tax Collection at Source – A Complete Guide
TDS Rate Chart for Financial Year 2019-2020
Section 192 – TDS on Salary
Section 192A – TDS on Premature withdrawal from EPF
Section 193: TDS on Interest on Securities
Section 194 – TDS on dividend
Section 194A: TDS on interest other than interest on securities
Section 194B and Section 194BB – TDS
Section 194D – TDS on insurance commission
Section 194DA – TDS in respect of Life Insurance Policy
Section 194E – TDS on payment to Non-resident Sportsmen or Sports Association
TDS under Section 194EE and Section 194F
Section 194G TDS on Commission on Sale of Lottery Tickets
Section 194H – TDS on Commission or Brokerage
Section 194I of Income Tax Act, 1961 – TDS on Rent
Section 194IA TDS on transfer of immovable property
Section 194IB – TDS on Rent paid by Individual / HUF
Section 194LA: Payment of Compensation on acquisition of certain immovable property
TDS under Section 194LB, 194LBA, 194LBB and 194LBC
Section 194LC: TDS on income by way of interest from an Indian Company or a business trust
Section 194LD TDS on income by way of interest on certain bonds and Government Securities
Section 194J TDS on Fees for Professional or Technical Services
Section 194N – TDS on Cash Withdrawals
Section 194M: TDS on Payment of certain sum by certain Individual / HUF
Section 195 TDS on payment of any other sum to a non-resident

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Company: Taxguru / Sandeep Kanoi & Associates
Location: Mumbai, Maharashtra, IN
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7 Comments

  1. SANJAY AGGARWAL says:

    mai ek transporter hoon aur market se broker ke thru lorry lagata hoon aur lorry hire ki advance payment and balance payment broker ko karta hoon aur broker lorry owner ka non deduction TDS declaration deta hai aur tds nahi katwata hai to kaya yah sahi ya phir broker ko koi declartion dena chahiye dena chahiye to uska kya format hai

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