Tax Deducted at Source (TDS) under Section 194C of the Income Tax Act, 1961 applies to payments made to contractors for specified work. This article explores the provisions, rates, entities liable to deduct TDS, types of contracts covered, and procedural aspects.
According to Section 194C of the Income Tax Act, 1961 any person responsible for paying any sum to any resident contractor for carrying out any work (including supply of labour for carrying out any work) in pursuance of contract between the contractor and a specified person shall at any time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by cheque, or draft or draft or by any other mode, whichever is earlier, deduct tax at specified rate.
Who has to deduct tax?
01. Central or State Government;
02. Local Authority;
03. Any Corporation established under Central pr State Law;
04. Company;
05. Trust;
06. Co-operative Societies;
07. Society registered under Societies Registration Act;
08. Any institution doing the work of housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages or for both;
09. Any universities established or incorporated by or under a Central, State or Provincial Act or under section 3 of the University Grants Commission Act, 1956;
10. Any firm;
11. Any individual or a Hindu Undivided Family or an Association of person or a body of individuals, whether incorporated or not, other than those falling under any of the preceding clauses , whose total sales, turnover or gross receipts from the business or profession carried on by them exceeds the monetary limits specified under section 44AB(b)(a) during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor;
Rate of TDS:
If the payment paid to individual or HUF then TDS is to be done at 1% and in any other case 2% of such sum as income tax on income comprised therein.
As per the provisions applied from 1st April, 2010 if PAN is not provided, rate of TDS will be 20%.
Amount of Contract:
If the amount of single contract or subcontract, is more than Rs. 30,000 or during the financial year total payment is made more than Rs. 1,00,000 tax is to be deducted.
Following kind of work is to be considered as contract.
- Advertising
- Broadcasting and Telecasting
- Transfer of goods or passengers except by railway
- Catering
Different types of judgments which considered certain work as contract and certain are not contract.
1. As per the judgment of Associated Cement Company Limited vs. Supreme Court, (201 ITR 435), for transfer of goods, laborers supply by someone is considered as Contract. Supply of labour.
2. Supply of bus by a private bus owners to Transport Corporation, is to be considered as contract. (Circular No 458 of CBDT dated 20.03.1990)
3. Work given to other party to feel up wine in bottles is also considered as contract. (United Excise v/s CMT. 28 STC 16)
4. To feet windows and doors in building is considered as contract (M. Muthiya Achari and sons v/s State of Madras. STC 350)
5. Periodical Publication, this type of business is also considered as contract as per decision of Income tax Commissioner v/s Kumudam Publication Pvt. Ltd. 188 ITR 84.
6. If the original contract is of Rs. 30,000 or less but during the year there is increase in amount of contract, then tax is to be deducted on full amount of contract during the year.
7. Advance Payment, regarding contract, before starting the work, if any amount received exceed Rs. 30,000 as advance payment, as per notification no 681 dated 8th March, 1994 of CBDT tax is to be deducted on the whole amount paid during the year.
8. Catering Contract, given either to hotel or restaurant, tax is require o be deducted as per circular no 715 dated 8th August, 1995 of Board.
9. Courier Services, this will considered contract, this activity is considered as transfer of goods. Circular No 715dated 8th August, 1995 of CBDT.
10. Payment to agency for booking of railway, bus, flight ticket. As per circular no 715, dated 8th August, 1995, booking of each ticket of passenger is not required to deduct tax, but if payment is made for contract of booking, tax is to be deducted.
Tax deduction at lower rate: As per section 194C(4), if any person wish that rate of tax deduction is higher, he may apply in Form No 13 to income tax officer for lower rate of tax or no deduction of tax. After verifying the facts officer will issue certificate to assesse.
As per circular of CBDT Circular No. 720 dated 30th August, 1995 if different section are applicable, like section 194C and 194J, then only one section will apply and not both.
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