Section 194C TDS Contractors: Requirements To Deduct TDS Under This Section. Section 194C deals with the amount of any sum to the resident contractor (including the supply of labour) by any person to carry out any work based on a contract. The contract can be between the contractor and any one of the following:
- Any State Government or Central Government.
- Local Authority.
- Corporation established under Central, State or Provisional Act.
- Co-operative Society.
- Company.
- Firm.
- Any Deemed University or University.
- Societies registered under Society Registration Act, 1980.
- Authorities constituted in India under any law engaged in satisfying and dealing with housing accommodation, development and improvement of cities, towns, villages and planning.
Limitations for TDS Under Section 194C
- TDS shall not be deducted if payments under section 194C limit to ₹30,000 for a single contract.
- TDS shall be deducted if the aggregate payment of a contract exceeds ₹100,000.
- Payment made at any time during the previous year to any goods transporter who is in the business of hiring, plying or leasing goods and owns ten or more carriages. The contractor has to furnish PAN along with the declaration of the above.
- Personal purposes
- Section 194C limits TDS deduction if payments are made to any non-resident contractor or sub-contractor.
- Payments made to any bank listed in the Second Schedule of the RBI act excluding foreign bank for
- Cash management service charges
- Clearing charges (MICR charges)
- Bank guarantee commission
- Depository charges on maintenance of DEMAT accounts
- Underwriting service charges
- Charges for warehousing services for commodities
- Debit card or Credit card commission for transactions between the merchant establishment and acquirement bank – Notification no. 56/2012, dated 31st December 2012
- According to the payer’s specification, if payments are made for purchasing any products. TDS is to be deducted if the product is manufactured using material purchased by the payer.
Threshold Limit In Section 194C
- The threshold limit for a single payment or credit is 30,000.
- The threshold limit for the aggregate amount credited or paid or likely to be paid is ₹100,000.
Rate Of TDS Under Section 194C
| Payment Made To | Contractor/Payee provides PAN | Contractor/Payee does not provide PAN |
| Hindu Undivided Families (HUFs) |
1% | 20% |
| Resident Individuals | 1% | 20% |
| Any party which is other than HUFs or resident individuals |
2% | 20% |
| Transporters, with not more than 10 vehicles |
No TDS deduction | 20% |
| Transporters, with more than 10 vehicles |
Either 1% or 2% Depends on the recipent status |
20% |
Deduction Time
When the amount is credited to the payee’s account of such contract or sub-contractor by cash, draft, cheque or any other modes, tax is to be deducted. If the amount is credited in March, TDS will be deposited on or before 30th April. If the amount is credited in a month other than March, then TDS should be deducted within seven days from the end of the month.
What Is The Meaning Of Sub-contractor And Contractor?
Sub-contractor:Â It means a person who enters into a contract for:
- Supplying labour for all or part of work taken by the contractor.
- Performing all or part of work for which the contractor has agreed to complete.
Contractor:Â It means any person who enters into a contract with state/central government, corporation, local authority, company or a cooperative society to perform any form of work (including the supply of labour).
What Is The Meaning Of Work u/s 194C?
- Advertising
- Telecasting and broadcasting, including the production of programs too.
- Catering.
- Transport of passengers and goods using any mode of transport excluding railways.
- Supply or manufacturing product as per customer specification and by using materials purchased from him or her. It does not include the supply and manufacture of a product as per customer specification but materials purchased from other customers.
Other Points
- As per notification no. 01/2014, tax is deductible on the amount excluding GST if the GST amount is shown separately.
- Under section 194C, education cess, surcharge or secondary and higher education cess is not payable.
- Manufacturing or supplying product based on contract, TDS shall be deductible on the value of product excluding the value of material, if such value is separately mentioned in the invoice. TDS shall be debited on the whole amount of the invoice if not mentioned separately.
Calculation Of TDS In Case Of Composite Work Under Section 194C
Work includes supplying or manufacturing a product as per customer specification and by using the material purchased by the customer. Therefore, TDS will be deducted on:
TDS will be debited on the invoice value, excluding the material price.
When the material price is not indicated separately, TDS will be deducted from the total invoice value.
Under Section 194C, The Specified Persons Who Are Required To Deduct TDS
- Any person, being a HUF or an Individual or a body of individuals or an association of persons if such person—fails to fit into any of the preceding sub-clauses and
- Is liable to accounts audit under clause (a) or clause (b) of Section 44AB during the financial year immediately preceding the financial year in which such sum is credited to the contractor’s account. In other words, the only assessee is liable to audit due to receipts or turnover greater than ₹ 10 million or ₹ 2.5 lakh as the case may be.
- Any partnership firm
- Any company
- Local Jurisdiction
- Any corporation recognized by or under a Central, State or Provincial Act.
- The Central Government or any State Government
- Any cooperative society
- Authorities constituted in India under any law engaged in satisfying and dealing with housing accommodation, development, and improvement of cities, towns, villages, and the purpose of planning.
- Any university recognized 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)
- Societies 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
- Any Trust
- Any foreign enterprise or any association or Government of a foreign State or body established outside India.