Any person responsible for making any payment to a resident contractor for a contact to carry out any work or in connection to a contact for carrying out any work has to deduct TDS under section 194C of income tax act, 1961.
Section 194C is also applicable to a sub contractor and any contractor supplying labour to carry out any work. As such, TDS has to be deducted by the person responsible for making any payment.
Tax from such contractor or sub contractor has to be deducted at the time of payment or credit whichever is earlier.
Section 194C of income tax act says payment for carrying out any work will attract TDS. Work for the purpose of section 194C will include;
- broadcasting and telecasting including production of programmes for such broadcasting or telecasting;
- carriage of goods or passengers by any mode of transport other than by railways;
- manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer,
But it 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.
Cases where Section 194C is not applicable
- Provision of deducting Tax at source under section 194C will not be applicable where the payer being an individual, HUF, AOP or BOI have total sales, gross receipts or turnover from business or profession carried on by them is below the monetary limit of Rs. 1 Crore in case of business and Rs. 25 lakhs in case of profession during the financial year immediately preceding the financial year in which such amount is credited or paid.
- Provision of section 194C for deducting Tax at source is not applicable to an individual or HUF if the sum is paid towards personal expenses of such individual or any member of HUF.
Threshold limit for Section 194C
The payer has to deduct Tax at Source from the sum to be paid to the contractor or sub-contractor where;
- The total sum credited or paid during the financial year exceeds Rs. 75, 000 or
- Any single sum credited or paid exceeds Rs. 30, 000
Budget 2016-17 proposed to increase the above limit of Rs 75,000 to Rs 1,00,000 with effect from the 1st day of June, 2016
Rate of TDS under section 194C
Where the payment is being made or credit is being given to an individual or a HUF, TDS has to be deducted @ 1% on the contract value.
Where the payment is being made or credit is being given to a person other than an individual or HUF, TDS has to be deducted @ 2% on the contract value.
Other relevant points for Section 194C
- Cases where the contractor is engaged in plying, hiring or leasing goods carriage, any freight charges paid to such contractor will not be subject to Tax Deduction at Source under section 194C if such person provides his PAN to the person responsible for deducting TDS.
- TDS has to be deducted under section 194C from any sum payable to sponsorship of debates, seminars and other functions with a view to earn publicity. Even any sum payable towards cost of advertisement issued in souvenirs which are brought out by various organizations will attract TDS under section 194C.
- Section 194C for deducting TDS will not be applicable for any payment made to Doordarsan, a government agency for advertisement. But payment to any other print and electronic media will attract TDS under section 194C of income tax act.
- Payment to courier agencies for theirservices will attract TDS under section 194C.
- Any advance payment for executing a contract covered under section 194C will attract TDS.
- Transportation charges paid by the purchaser to the seller/owner for transporting gas will not attract TDS under section 194C even though such charges are shown separately in the invoice or included in the cost of gas. However if such transportation charges are paid to a third party for transportation of gas then TDS will attract under section 194C of income tax act.