Section 194C of Income Tax -TDS on payments made to Contractors

TDS ON PAYMENTS MADE IN RESPECT OF CONTRACTUAL WORK UNDER SECTION 194C

TDS is required to be deducted u/s 194C of the Income Tax Act in case any payment is made in pursuance of any works contract to any resident.

How is required to deduct TDS on payment to Contractors?

Any person who is making payment to Contractors in respect of works contract for any work (including supply of labor for carrying out any work) is required to deduct tax at source.

In case, the payer is an individual or HUF, the liability to deduct tax is only when the turnover of the individual or HUF is above 1 crore during the preceding previous year in respect of the business and Rs.50 lakhs in respect of any profession.

In the case of any other person (other than individual and HUF), the liability arises irrespective of the turnover limit.

What is the rate of TDS on the works contract?

The TDS rate of deduction in case of payments made in pursuance of the works contract is :

(i) 1% when the payment is made to an Individual or HUF

(ii) 2% in respect of payments made to any other person,

The TDS is required to be deducted in case of resident person only i.e. if the payment is made to NRI no TDS is required under this section since separate section 195 is there is this behalf.

Is there any limit above which TDS is required?

TDS on payments made to contractors is required only if the payment or credit is above Rs.30000/- at a time. However, if the total aggregate payments or credits are more than Rs.100000/- during the financial year, TDS is required to be deducted.

Thus if a single invoice is below 30000/- no TDS is required to be deducted. However, if total invoices during the F.Yr. exceeds Rs.100000/- TDS is required at that time.

Is TDS required on all payments or there is some exemption for personal purposes?

TDS on the works contract in respect of payments made to contractors for personal purposes is not required to be deducted in the case of Individual or HUF.

Exemption of TDS on Goods carriage business?

If the payment is made to any goods carriage in respect of transportation charges and that goods carriage owner has 10 or fewer goods carriage, no TDS is required to be made. However, the Goods carriage owner should provide his PAN along with a declaration to the person that he has less than 10 goods carriages.

The details of PAN along with payment details should be submitted in the TDS return by the person making payment to goods carriage without TDS.

What is the meaning of "Work" in a works contract?

As per Section 194C, work" shall include:

(a) advertising;

(b) broadcasting and telecasting including the 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 or its associate, being a person placed similarly in relation to such customer as is the person placed in relation to the assessee under the provisions contained in clause (b) of sub-section (2) of section 40A, 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 or associate of such customer.

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