Sub-section (1) of section 194C of the Income-tax Act provides for deduction of income-tax at source from any sum credited or paid to a resident contractor for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and the Government, local authorities, statutory corporations, companies, co-operative societies, statutory authorities engaged in providing housing accommodation, registered societies, trusts, universities, firms and those individuals/HUFs who are required to get their accounts audited under section 44AB. A number of Special Purpose Vehicles (SPVs) are being set-up to execute large works contracts. Some of these SPVs are structured as Joint Ventures(JVs)/Consortiums in the nature of an Association of Persons (AOP) or Body of Individuals (BOI). Since the provisions of section 194C currently do not specifically require an AOP or BOI to deduct tax at source, there is scope for leakage of revenue. 

Therefore section 194C of the Income-tax Act, has been amended and it now stipulates that the following association of persons (AOPs) or body of individuals (BOIs), whether incorporated or not shall be liable to deduct income-tax at source at the time of credit or payment of such sum to the account of the contractor under subsection (1) of section 194C:

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(a) whose gross sales/receipts or turnover from business or profession exceeds the limit specified under section 44AB;

(b) whose gross sales/receipts or turnover from business or profession does not exceed the limit specified under section 44AB but who are specifically mentioned under clauses (a) to (j) of sub-section (1). 

Applicability: This amendment has been made applicable with effect from 1st June, 2008.

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