Section 194C of Income Tax Act, 1961 deals with the TDS that has to be deducted from specific payments made to resident contractors and sub-contractors. Generally, individuals paying the contractors or sub-contractors are entrusted with the responsibilities of deducting TDS.
As a result, both parties involved, i.e. a contractor and a payer (party or person) need to be aware of this Section of ITA to avoid the implications of not deducting the same. Also, contractors should find out about Nil or lower TDS provisions to protect their earnings from eroding.
Who is a ‘Person’ Under Section 194C?
Under Section 194C, a ‘person’ can be described as an individual who enters into a contract to get work done against payment. In general, a person can denote any of these following –
- A company
- A university
- A local authorised body
- The Central Government or the State Government
- A corporation
- A co-operative society
- A registered society
Other than these, an authority that has been incorporated to fulfil household requirements can be termed as a person under Section 194C of Income Tax Act.
What Constitutes as Work Under Section 194C?
As per Section 194C, ‘work’ may constitute any of these following –
- Broadcasting and telecasting
- Carriage of passengers or goods by any transportation mode besides railways.
- Supplying or manufacturing goods as per the specifications or requirements shared by the customer. It includes goods that have been manufactured using the materials purchased from customers or their associates. However, it does not include supply or manufacturing of goods made using materials that are not purchased from the customer or its associates.
Also, Section 194C TDS elaborates that any person paying a resident individual to carry out a specific work as per an agreement in exchange of payment is liable to deduct TDS.
The Section also defines the contractor and states that it is an individual who agrees to become a part of a contract to carry out work or supply workforce. On the other hand, a sub-contractor is an individual who has decided to enter into a contract to either carry out a part or entire work. Also, a subcontractor may enter into a contract to supply the workforce to a given project.
Provisions for TDS Deductions Under Section 194C
Concerned entities can deduct TDS under Section 194C of Income Tax Act only under these following conditions –
- The concerned contractor should be a resident Indian as per Section 6 of the Income Tax Act’s guidelines.
- Payments made to contractors must be carried out by individuals mentioned in the provision of Sec 194C.
- Payment made should be to conduct any work that includes the supply of workforce.
- Concerned entities must pay as per the clauses mentioned in their contract that is agreeable to both the contractor and the payer. Notably, such a contract can either be in a written or oral format.
- At any time, the amount of payment between the two parties should not exceed Rs. 30,000.
- When the advance payment made to a contractor is more than Rs. 30000 the payer has to make sure that TDS is deducted from the paid amount.
- If at any time the payment made by the payer to the contractor exceeds Rs. 75000 in a fiscal year, the payer must ensure that TDS is deducted from the payment.
Other than these, if there is a situation where the contractor’s payment does not exceed Rs. 30000 at first but subsequently exceeds it, the payer has to deduct TDS accordingly.
Notably, TDS is deducted when payment is credited to the payee’s account, in cash or by the issuance of a cheque or any other mode (whichever is earlier).
Deposit of TDS under Section 194C – Time Limit
This table below highlights the time limit when TDS has to be deposited –
|Category of payer||Date of deposit|
|The government or an entity who pays on behalf of the government.||The same day of payment.|
|When the payment is forwarded by an entity other than the government or on its behalf –
What is TDS on Contractor Rate Under Section 194C?
This table highlights –
|Particular||194C TDS Rate|
|Payment to entities other than a HUF or individual||2%|
|Payment to HUF or individuals||1%|
Notably, if the contractor fails to furnish PAN, the deductor has to deduct TDS at the rate of 20%. Also, TDS will not be deducted on credits or payments made to transporters.
Exceptions to TDS Under Section 194C
Here are some noteworthy exceptions to Section 194C TDS –
a. In case of composite deductions
- When the raw materials are supplied by the government.
- In case the contractor has entered into a contract to construct a dam or a building.
- Where the contractor will provide labour to carry out the contract.
b. In case the concerned party supplies material to the contractor
In such a case, there is no scope for a deduction.
Besides the exceptions under Sec 194C, it is advisable to determine when TDS is not deductible.
When is TDS Not Deducted Under Section 194C?
These pointers below enumerate the situations when TDS is not deductible –
- When the payment does not exceed Rs. 30000.
- If at any time the payment made by a payer to the contractor is less than Rs. 100000 in a fiscal year.
- When the contractor provides a declaration with PAN to the deductor.
- The amount credited or paid to a contractor who is involved in the business of leading goods carriage, plying, hiring, etc. However, such a contractor should not have owned more than 10 goods carriage in previous years.
TDS Certificate – Date of Issuance
According to Rule 31, entities who have to deduct taxes on payment other than salary need to issue TDS certificate quarterly in Form 16A. This table helps to gain an idea about the dates of issuance –
|Quarter||Date of issuance (For non-government deductor)||Date of issuance (For government deductor)|
|April – June||30th of July||15th of August|
|July – September||30th of October||15th of November|
|October – December||30th of January||15th of February|
|January – March||30th of May||30th of May|
Once individuals understand these aspects in detail, they should determine the requirements for filing returns under Section 194C of Income Tax Act. Doing so, they will be able to claim tax-related benefits as and where possible and will be able to streamline this process accordingly.