At the time of making any payment, TDS is required to be deducted by the person making the payment. The rate of TDS depends on the nature of the payment made. In this article; we would be focusing on Section 194C which deals with TDS on Payment to Contractor & Sub-Contractor.
CBDT issued a circular on 25th June 21 extending some timelines for AY 21-22
(i) The due date to file TDS return for Q4 of the FY 2020-21 is extended from 30th June 21 to 15th July 21.
(ii) The due date to furnish the TDS Certificate to employees in Form No. 16 is extended from 15th July 21 to 31st July 21.
- 1 What is Section 194C?
- 2 What is a Sub-Contractor as per Section 194C?
- 3 What is TDS to Sub-Contractor?
- 4 Where is the Payment made to Sub-contractors, what Conditions must be Satisfied?
- 5 When does TDS under Section 194C need to be deducted?
- 6 What is the rate of TDS?
- 7 Time Limit within which Tax is to be Deposited
- 8 Issue of TDS certificate
- 9 Return filing requirements u/s 194C
- 10 Certain important clarification is done by CBDT
What is Section 194C?
Section 194C of the Income Tax Act states that any person making payment to a resident person, who is carrying out any ‘work’ in terms of the contract between the ‘specified person’ and the resident contractor, is required to deduct TDS.
The ‘specified person’ mentioned above means the following –
- The Central Government or any State Government
- Any local authority
- Any corporation established by or under a Central, State or Provisional Act
- Any company
- Any co-operative society
- Any authority constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the needs for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages or for both
- Any society registered under the Society Registration Act, 1980 or under any such corresponding law to the Act in any Part of India
- Any trust
- The university established/incorporated by the Central, State, or Provincial Act
- Any firm
- Any Government of a foreign State or a foreign enterprise or any association or body established outside India
The Definition Of The Word ‘WORK’ Under Section 194C
The expression, “work” in this section would include-
- Conveyance of goods/travelers by any method of transport excluding railway;
- Broadcasting and telecasting including production of programs for such broadcasting or telecasting
- Production/supplying a product based on the specification of buyers by utilizing material acquired from the buyer. Nevertheless, it doesn’t bear when the material is purchased from an unspecified person other than the buyer.
What is a Sub-Contractor as per Section 194C?
A ‘sub-contractor’ is a person who becomes a part of the contract along with the contractor for-
- Conducting either whole or part of work, which the contractor has agreed to finish
- Supplying labour for either whole or a part of work that the contractor has undertaken
What is TDS to Sub-Contractor?
If a payment is being made to any resident sub-contractor
- in pursuance of a contract with the sub-contractor for carrying out, or for the supply of labor for carrying out, the whole or any part of the work undertaken by the contractor,
- TDS shall be deducted @ 1% on the gross amount of receipt at the time of payment in cash or issue of cheque or by demand draft or through any other mode (whichever is earlier).
- The rate is 0.75% for transactions from 14 May 2020 until 31 March 2021.
Where is the Payment made to Sub-contractors, what Conditions must be Satisfied?
- Payment is made to a sub-contractor who is resident within the meaning of Section 6 of the Income Tax Act, 1961
- Payment is made by a resident contractor, not being an individual or a HUF
- Payment is made to carry out any work, including the supply of labor
- The amount of consideration of the contract in respect to which payment is made should not be less than Rs. 30,000
- The sum should be credited or paid by the contractor in respect of a contract undertaken by him with the specified bodies
When does TDS under Section 194C need to be deducted?
The person responsible for making payment to the resident contractor/sub-contractor should deduct TDS,
- either at the time of crediting such sum to the account to the payee or
- at the time of payment thereof in cash or
- by an issue of a cheque or by any other mode, whichever is earlier.
What is the rate of TDS?
Note:- No Surcharge, Education Cess, and SHEC shall be added. Hence, TDS shall be deductible at basic rates.
List of exceptions i.e., cases wherein TDS is not to be deducted u/s 194C
No tax is required to be deducted in the following cases:
- Where the sum paid or credited in pursuance of any contract does not exceed Rs. 30,000, or
- Where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year does not exceed Rs. 1,00,000 the person responsible for paying such sums will not deduct TDS under this section
- The amount paid/credited to the account of the contractor engaged in the business of hiring, plying, or leasing goods carriage, where the contractor doesn’t own more than 10 goods carriage at any time during the previous year. The Contractor is required to furnish the declaration along with the PAN to the Deductor.
- The amount is paid or credited to the contractor by an individual / HUF for carrying out work in the nature of personal use.
Time Limit within which Tax is to be Deposited
- Where the payment is made by or on behalf of the Government – On the same day.
- Where the payment is made in any other case than the government
- If the amount is credited in the month of March – On or before April 30th
- In other months – Within 7 days from the end of the month in which the deduction is made.
Note: The payer is the person responsible for TDS.
Issue of TDS certificate
In case of payments other than salary, TDS certificates are to be issued on a quarterly basis in Form No.16A. As per rule 31, every person responsible for deduction of tax from payments other than salary has to issue a quarterly TDS certificate in Form No. 16A. The certificate is to be issued by the following dates:
Return filing requirements u/s 194C
Every Deductor deducting TDS in terms of section 194C is required to file a quarterly return in Form 26Q within the following due dates –
|April to June||31st July|
|July to September||31st October|
|October to December||31st January|
|January to March||31st May|
Certain important clarification is done by CBDT
- FD Commission and brokerage are not covered under section 194C.
- Payment made to an electrician or payment made to a contractor for providing electrician service is covered under section 194C.
- Payment made to courier covered under section 194C.
- Payment made to a travel agent or an airline for the purchase of a ticket is not subjected to TDS under section 194C. However, if the plane, bus, or any other mode is chartered, then TDS is liable to be deducted under section 194C.
- Payment made to clearing and forwarding agents for the carriage of goods is liable to TDS under section 194C.
TDS at a Lower Rate
According to Section 194C where the AO is satisfied that the total income of contractor or sub-contractor justifies the deduction of income-tax at any lower rate or no deduction of income-tax, as the case may be, the AO shall, on an application made by the contractor or sub-contractor in this behalf give to him such certificate as may be appropriate. The contractor or sub-contractor can then furnish the lower rate or nil TDS certificate to the deductor.