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. Deductor Deductee Work Payment TDS rate TDS
1 Individual Individual Advertising contract 20000 NA NA
2 Individual HUF Job work 35000 1% 350
3 Company Individual Labour supply contract 29000 NA NA
4 Individual Company Advertising 32000 2% 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.

Date Purpose Payment TDS rate TDS
22/4/13 business 22000 NA NA
30/6/13 Business 29000 NA NA
30/9/13 Business 25000 1% 760
31/1/14 Personal 32000 NA NA
21/3/14 Business 22000 1% 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.