Deduction of TDS under section194C always remain a confusing section. It may be due to its drafting or similarity with other section like 194H, 194J etc.

In this Article it is endeavour to remove confusion and provide solution in respect of applicability of 194C considering some day in day out transactions based on various Circular/Clarification, interpretation, Case Study etc.

As per Section 194C- (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to—

(i)  one per cent where the payment is being made or credit is being given to an individual or a Hindu undivided family;

(ii)  two per cent where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family, of such sum as income-tax on income comprised therein.

Here following things are very significant to interprets

1. Any SUM– Although – No deduction shall be made from the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor, if such sum does not exceed thirty thousand rupees or financial year not exceeds one lakh rupees,

2. Pay to Resident– It is applicable when any SUM to be paid to Resident-it means Payment to Non-Resident would not attract 194C.

3. For carrying out any WORK– explanation iv of this sections says – “work” shall include—

(a)  advertising;

(b)  broadcasting and telecasting including production of programmes for such broadcasting or telecasting;

(c)  carriage of goods or passengers by any mode of transport other than by railways;

(d)  catering;

(e)  manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the  requirement or specification of a customer by using material purchased from  a person, other than such customer it is inclusive definition, it means a part of applicability of 194C on work, these specified service shall also attract 194C

4. In pursuance of a contract– As per section 2(h) of Indian Contract Act-1872- An agreement enforceable by law is a contract. It means there must be an agreement. As per section 10 of Indian Contract Act-1872- All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.

5. Between the contractor and a specified person– It means there must be a contract between two or more person.  explanation (i) in this section says “specified person” shall mean

(a)  the Central Government or any State Government; or

(b)  any local authority; or

(c)  any corporation established by or under a Central, State or Provincial Act; or

(d)  any company; or

(e)  any co-operative society; or

(f)  any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or

(g)  any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India; or

(h)  any trust; or

(i)  any university established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a university under section 3 of the University Grants Commission Act, 1956 (3 of 1956); or

(j)  any Government of a foreign State or a foreign enterprise or any association or body established outside India; or

(k)  any firm; or

(l)  any person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, if such person,—

(A)  does not fall under any of the preceding sub-clauses; and

(B)  is liable to audit of accounts under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor;

Although Govt, times to time issued various circular and clarification but still there is lot of confusion over applicability of TDS u/s 194C on various transaction. Now base on above, we will discuss applicability of section 194C on various day in day out transactions

Chart showing Applicability of section 194C on various day in day out transactions

S.N Particular TDS Section Remarks
1 Subscription of Journal/Magazine Not applicable
2 Membership Fees for any Organization Not applicable
3 Serving food in a restaurant/ buying of eatables in the normal course of running of the restaurant/cafe Not applicable Circular 5/2002
4 Organising meeting in hotel and supply of food Applicable 194C
5 Hotel Stay Room Rent (ARC contract) Not applicable Circular 715/1995
6 Reimbursement of expense to professional (C.A, Lawyer Firm etc) Not applicable Subjected to vendor provides bills in support of expenses
7 Freight  payment to vendor supplying material :-

A) Transportation is arranged by vendor and sales is ex-work

B) Transportation is on vendor scope

 

A) Applicable

B) Not Applicable

 

 

194C

8 Arbitration Fees to Arbitrator and payment to Arbitral tribunal /Court Not applicable Does not fall under any section of chapter XVII-B
9 Payment to land owner on the direction of Court- settlement cases As per Direction of Court
10 Payment to Railway/Government Authority (Not to be confused with definition of Govt. or Local Authority under GST) Not applicable Section 196 of Income Tax Act-1961
11 Payment to a recruitment agency Applicable 194J Circular 5/2002
12 Supply of printed material as per prescribed specifications- Annual Report, In-house Magazine, Poster, banner, etc.

In our case material like new print items, paper, ink etc. are not supplied by IOC

Not Applicable
13 Sponsorship of debates, seminars and other functions.

(A) if funds are made available to organisations or events without any condition regarding display of banner, pamphlets, or any other Corporate presence,

(B) If funds are made available for publishing of Advertisement in Print Media, say, Souvenir, Books Memorabilia, etc

(C) If funds are made available with a condition to display banner, pamphlets or any other way whereby Corporate presence is registered in such events or organisation.

A) Not

Applicable

B) Applicable

C) Applicable

 

 

 

 

 

 

 

194C

194C

14 On payments for cost of advertisement issued in the souvenirs Applicable 194C Circular 5/2002
15 Taking premises on Rent for Display for few days Not applicable
16 Routine maintenance contract Applicable 194C Circular 5/2002
17 Supervision/Inspection Services. Applicable 194J Circular 5/2002
18 Payment to interviewer Applicable 194J
19 Transfer of immovable property from local Authority

Transfer means-(Sale or Purchase or exchange or lease for a term of not less than twelve years)

Applicable 194IA
20 Upfront payment for lease

a) Twelve or more than 12 Years

b) Less than 12 year

a) Applicable

b) Applicable

 

194IA

194I

21 Regular lease payment on fixed interval as per contract account Applicable 194I

Disclaimer: The entire above stated article is squarely based on our opinion, derived from the interpretation of the respective sections, rules and circulars as amended and other notifications. The observations are the personal view and the authors do not take responsibility of the same and this cannot be quoted before any authority.

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