Section 194C -TDS on Contractor

Hello, in this post we will see in detail about the TDS Section 194C  payment made to Contractors and Sub-Contractors.

We will cover the following topics for you:

Introduction

Section 194C of the Income Tax Act is about the Tax Deducted at Source (TDS) that needs to be mandatorily deducted from any kind of payment made to persons who are basically contractors or subcontractors.

These contractors or subcontractors should be an Indian resident. According to this section, when a payment is made to a contractor, the person who had made the payment needs to deduct the TDS.

Who should deduct TDS under Section 194C?

The ‘person’ in Section 194C is someone who enters into a contract with a contractor, to carry out work in exchange for payment. It includes the following:

  • Central or State Government
  • Local Authority
  • Corporation
  • Company
  • Co-operative Society
  • Trust
  • University
  • Registered Society
  • Firm
  • Individual/HUF/AOP/BOI need their accounts audited under Section 44AB (a) and (b).

Note: If accounts of individual and HUF not applicable for tax audit then they do not need to deduct TDS u/s 194C.

Meaning of “work” under Section 194C

The term ‘work’ constitutes any of the following:

  • Advertising;
  • Carriage of goods/passengers by any mode of transport (not railway);
  • Broadcasting and telecasting (includes programme production for broadcasting or telecasting);
  • Catering;
  • Manufacture/ supply of product as per customer’s requirement and specification using purchased material from the customer.But it doesn’t include when the material is purchased from any person other than the customer.

Rate of TDS under Section 194C

Deductor needs to deduct TDS under Section 194C according to the following rates:

Particulars Rate of TDS
Payment made to an individual or HUF 1%
Payment made to a person other than an individual or HUF 2%

Note: If PAN is not provided then the rate of TDS deduction is 20% (i.e. at the maximum marginal rate).

Due date

For issuance of TDS certificate

The Deductor need to issue TDS certificate in Form 16A within the following due date:

Month Due date
April to June 15th August
July to September 15th November
October to December 15th February
January to March 15th June

For return filing

Deductor when deducting TDS as per Section 194C need to file a quarterly return in Form 26Q within the following due date:

Months Due date
April to June 31st July
July to September 31st October
October to December 31st January
January to March 31st May

When TDS is not deductible under 194C?

TDS is not required to be deducted under the following circumstances:

  • When the amount paid to the contractor in a single contract is not above 30,000.
  • If the total amount paid in an FY is not more than 1 lakh.
  • If the amount is paid to the contractor in the hiring, plying or leasing goods carriage and do not own more than 10 goods carriage at any time in the previous year. However, the Contractor along with his PAN should furnish a declaration to the Deductor.
  • The amount is paid to the contractor by an individual / HUF for carrying out work for personal use.

Consequences of non-compliance under this section

  • Interest payment: When the deductor does not deduct TDS or TDS deducted but not deposited to the government within the due date then interest must be paid.
  • Expenses are disallowed: The person can not claim the deduction of expenses from PGBP income (Profits and gains from business or profession) if TDS is not deducted on time. The disallowed amount for expenses is 30% of the payment.

However, if TDS is deposited in the following years then the expense will be allowed in the TDS payment year.

With that, we have come to an end of this post on Section 194C. Share your queries in the comment section below.

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