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TDS on contractors under section 194C

TDS u/s 194C (TDS on contractor)

While paying to contractor, you should remember provision for TDS on contractor u/s 194C of income tax act. The provision guides to deduct TDS when there is payment exceeding minimum limit of section 194C.

tds on contractors

TDS on contractors u/s 194C

What is work contract for section 194C?

  1. advertising
  2. broadcasting
  3. carriage of goods and passengers by any mode of transport other than railway.
  4. catering.
  5. labour supply for work contract
  6. Manufacturing or supplying a product according to requirement of specification of a customer by using material purchased from customer.

Who should deduct TDS  u/s 194C?

It is not so that all should deduct TDS while making payment to contractor. But specified person mentioned in section 194C  of income tax act should deduct TDS while paying to contractor.

  1. Contractor should be resident of India.
  2. Central government or state government
  3. Local authority
  4. Corporation established by or under central, state or provincial act.
  5. Company
  6. Cooperative society
  7. Housing society
  8. Any society registered under the societies registration act, 1860 or any other law in India.
  9. Any trust
  10. University established by central government, state government or under section 3 of the university grants commission act, 1956.
  11. Foreign government, foreign enterprise, any association or body established outside India.
  12. Any firm
  13. Any individual, HUF whose books of accounts are required to be audited under section 44AB during the immediately preceding financial year.
  14. AOP or BOI whose books of accounts are required to be audited under section 44AB during the immediately preceding financial year.

When tax should be deducted?

Tax should be deducted at source at earlier of the followings:

  1. Payment to contractor by cash or cheque.
  2. Credit of account of contractor in books of account of payer.

When tax should not be deducted at source?

TDS u/s 194C should not be deducted in following situations.

  1. When individual, HUF are running business which is not liable for audit.
  2. When work is used for personal purposes by individual or HUF.
  3. When there is no work contract.
  4. No tax should be deducted when product is manufactured or produced as per requirement of customer but material is purchased by other party and not from such customer.
  5. No TDS should be deducted in the first year of operation of business (first year of business starting).

Monetary limit for TDS on contractor u/s 194C:

Tax is not deductible on all payment but Tax should be deducted at source in the following situations:

  1. The amount of any sum paid or credited to contractor or subcontractor exceeds Rs. 30000 (single payment)
  2. The amount of any sum paid or credited to contractor or subcontractor exceeds Rs. 75000 during the financial year.

TDS u/s 194C rate:

Rate of TDS u/s 194C varies according to payee (deductee)

Tds rate when payment is to individual or HUF : 1% on payment amount

When payment is to other than individual or HUF: 2% on payment amount

TDS on payment to transporter:

There is no liability to deduct TDS on payment to transporter where transporter provides pan card copy. When transporter does not provide PAN card copy, TDS u/s 194C shall be deducted at the rate of 20% on payment.

Meaning of transporter:

Transporter means person carrying business of plying, hiring, leasing goods.

Due date of payment of TDS:

TDS should be deposited within 7 th of following month when TDS is deducted. This date is for non government deductor. For government deductor, TDS should be deposited on same day when TDS is deducted.

How to pay TDS online?

Paying TDS online is very easy. Read our post on this matter.

How to pay tds online?

Traces site

TDS deduction when there is no PAN available:

when PAN of deductee is not available, TDS should be deducted at the rate of 20% and in filling TDS return  C entry (higher deduction due to non availability of PAN  should be selected.)

Other points:

  1. Payment to courier agencies will attract TDS u/s 194C.
  2. Advance received for contract work will also attract TDS u/s 194C.

Examples for TDS on contractor:

Let’s understand provision for TDS on contractor with following examples.

No.DeductorDeducteeWorkPaymentTDS rateTDS
1IndividualIndividualAdvertising contract20000NANA
2IndividualHUFJob work350001%350
3CompanyIndividualLabour supply contract29000NANA
4IndividualCompanyAdvertising320002%640

NA means tds deduction is not required.

Assuming that individual is audit party.

Now we take another example when Trishul Ltd has taken services of work contractor during the year on various dates. Let’s examine TDS provision and applicability on various payments.

DatePurposePaymentTDS rateTDS
22/4/13business22000NANA
30/6/13Business29000NANA
30/9/13Business250001%760
31/1/14Personal32000NANA
21/3/14Business220001%220

In above example, we can see applicability of TDS u/s 194C in various cases.

22/4/13: TDS should not be deducted as payment is less than Rs. 30000

30/6/13: same as above.

30/9/13: Though payment is less than Rs. 30,000 Rs. but total payment during the year exceeds Rs. 75000. (22000+29000+25000= 76000). In this case, TDS should be deducted on all the payments made till 30/9/13.

31/1/14: The payment is more than 30000 but it is for personal purpose so it is exempt from TDS provision.

21/3/14: Though payment is less than Rs. 30,000, TDS is required to be deducted as payment made during the year exceeds Rs. 75000.

Deductee’s view:

If you are contractor and your tax deducted at source u/s 194C, you can get it back if your tax liability is nil or less than TDS.

Refundable amount = TAX deducted at source + ADVANCE TAX less tax payable during the year.

You can check TDS credit by form 26AS. Read how to analysis form 26AS.

Also don’t forget to get tds certificate in form 16A from deductor. If TDS credit is not reflected in form 26AS, contact the deductor.

In this article, we get knowledge of basics of TDS on contractors. I hope it will help you in trasactions with contractors. Please feel free to ask any query if you have any for section 194C. Don’t forget to share this article with your friends and spread knowledge.

 

 

 

 

 

 

 

 

 

 

30 Comments

  1. By Abdul Fayaz

    Can you please explain me about (TDS) Rates?Which Section applicable to our company.We are providing Security Guard Services to the Banks(Manpower Supply as a Contractor) and also Providing CASH VAN Services(cash loading/unloading vehicles with our security guards/gunmen) to the banks.

    I read in Income Tax TDS Rates Chart with Sections. Section 194C: Payment to contractor/sub-contractor
    b) Others(Company)-2%(TDS Applicable) but for Cash Van Vehicles some Banks are saying 10% TDS applicable.Please brief me about this.

    Please let me know TDS Rate along with sections which is applicable to our company?

  2. By Abdul Fayaz

    Deductor Deductee Work Payment(e.g) TDS Rate
    Pvt Ltd Company Public/Pvt Ltd Company Security Guard Services 10,00,000/- ???
    /Manpower Supply On Contract

    • By admin

      Please clear the question.

  3. By VISHWESH

    madame, please convey whether PAN number is compulsory for not deducting TDS on single payment of transportation charges less than Rs.30000 & aggregate amount for the year is also less than Rs.75000

    • By admin

      No, need of PAN card as the payment is already less than threshold limit.

      • By VISHWESH

        Thank u mam

  4. By manish

    you can please tell me about 194c .i want to know that which person have to ten or less goods carriage,either transporter,by whom we demand for trucks or truck owner who gives us truck by transporter

    • By admin

      Tds u/s 194C is not required to deducted if such contracor has ten or less trucks and furnish his PAN card. Otherwise TDS u/s 194c will be applicable.

  5. By tharak

    if loan taken from persons like friends, brothers and etc……..can I take interest on borrowed capital deduction u/s.24 (b)

    • By admin

      Yes, it is allowed under section 24B. It is not compulsory to get loan from housing society or bank in the section.

  6. By ENALRAM YADAV

    KINDLY GIVE THE DETAILS IF PRINT MEDIA IS A PVT LIMITED COMPANY AND SUBMITTED BILL WHAT IS RATEOF % FOR TDS.

    • By admin

      Please give details about your work.

  7. cave on hire from contractor and cash paid rs. 30000. give journal entry

    • By admin

      Contractor a/c dr

      To cash

      To TDS payable

  8. By vinod kumar -9855953700

    dear didi taranuum

    a proprietor has raised on our company various bills of 85150/-,but after settlement company is paying 50000/-lump sum.
    question is that compnay is liable for tds on 85150/- or rs 50000/-

    vinod-9855953700

    • By admin

      Company is liable to deduct tds on payment which is Rs.50000

  9. a company deployed security Service upto December’15 & paid Rs 85,097.00 on monthly basis but not deducted TDS on it.but question is here how much TDS will be deducted and how much Interest will be Charged by such company on such amount.

  10. By Vinayak

    When a payment to Contractor exceeds 75000 ie 76000 in March 2016 How will TDS be deducted ir: TDs to be deducted on Exces 1000 over 75000 or Or on full amount?

    • By admin

      TDS should be deducted on full amount – Rs. 76000.

  11. By Vaibhav

    Should pvt ltd deduct tds in first year of operation when paying to a contractor?

    • By admin

      Yes, it is mandatory for PVT LTD to deduct TDS. irrespective of Turnover.

  12. By Leenus M K

    Madame,

    Our Pvt Ltd Company in India has awarded a contract to an Oman based company for installation of materials that were supplied by our Company (free of cost to them). During the course of the execution of the contract, we have effected some on a/c payments to this Oman based Company but have not deducted the TDS at the time of such on a/c payments.

    At the time of effecting the on a/c payments, the Oman based Company did not have a PAN. However, subsequently they have obtained a PAN.

    Now, we are in the process of finalizing the NET amount payable to the Oman based Company. Pls. advise on the following…

    1) What are the implications for not deducting TDS at the time of effecting on a/c payments in the past ?
    2) What are the options to regularize this matter ?
    3) What is the TDS percentage to be deducted from this Oman based Contractor ?

    • By admin

      Your company has to pay interest on non deduction of TDS and deduct TDS as per section 195. You need to search a bit about section 195. I cant provide all the details in one comment about section 195. Thanks for patience. :)

  13. By sagar kotak

    Dear madam, we are registered as a trust . and now we need to security guard for our office as a individual person and he’s payment is monthly rs.8000/- so please let me know of tds rate for the same

    Thanks & Regards

    Sagar Kotak

  14. By Sridhar

    Whether to deduct TDS from the bills of the service providers on Gross or Net ( Including or Excluding EPF ESI)?

  15. By Madhumita Mazumdar

    Is limit of contractor single payment 30000/- and yearly 75000/- applicable for transporter.

  16. By swapnil

    Dear Madam,

    Today i had been filed my income tax returns, but i m showing marriage expenses of Rs.47,304/-
    Please rply for this expenses is alloawable or taxable.

    • By CA Tarannum Khatri

      Swapnilji,

      Marriage expenses are not deductible. So please dont show it in income tax return. By the way, Congratulations on behalf of Tax Masala Team. Happy Marriage Life !!

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