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Rate of TDS on Payment to Contractor and Sub Contractor under Section 194C of the Income Tax Act

Rate of TDS on Payment to Contractor and Sub Contractor under Section 194C of the Income Tax Act, 1961. TDS Rate 1% where the payment is being made or credit is being given to an individual or a Hindu undivided family and 2% where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family. (Also Check TDS Rates Chart For Year 2013-14)

NATURE OF PAYMENT

Any person made for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract.

MEANING OF CONTRACT:

Contract includes sub contract. Thus, TDS shall be necessary in case of main contract as well as sub-contract.

Contract may be oral or written. Thus shall be necessary in case of oral contract as well as written contract.

MEANING OF WORK:

  • For the purpose of this section the expression “work” shall includes –
  • Advertising
  • Broadcasting
  • Telecasting
  • Production of programmes for broadcasting or telecasting
  • Carriage of goods or passenger by any mode of transportation other than railway
  • Catering
  • Manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer.

However, “work” does not include manufacturing or supplying a product according to the requirement or specification by using material purchased from a person other than such customer. Also Check Online Income Tax TDS Statement and Challan No 281: For Payment of TDS/TCS

It may be noted that the definition of the term “work” is inclusive ad not exhaustive.

NO TDS IN CASE OF PAYMENT FOR CARRIAGE OF GOODS:

No TDS is required in the case of any sum paid or credit to a contractor during the course of playing, hiring or leasing goods carriages, if the payee submits his PAN to the payer. In such a case, the payer shall furnish the details of PANs to the prescribed authority, in a prescribed from, within the prescribed time limit. Also Read View Form 26AS TDS Deduction Status Online

TDS ON WHICH AMOUNT?

Normally the tax is deducted on the gross amount of payment / credit. However, in the case of manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, the tax shall be deductible as under:

  • On the whole of invoice value, if the value of material is not mentioned separately in the invoice.
  • On the invoice value excluding the value of material, if the material is separately mentioned in the invoice.

Payee

Basic Rate of TDS

Individual or HUF

1%

Any other

2%

MONETARY LIMIT: RS. 30000/- OR 75000/-

TDS shall be necessary in following cases –

If the amount (i.e. single sum) credited or paid to the account of the payee, exceeds Rs.30000/- or

If aggregate of the amounts credit or paid to the payee during the financial year exceeds Rs.75000/-

NOTES :

This section shall not apply in following cases –

If the contract is not made for carrying out any work.

For example:

  • A contract for sale / purchase of goods or assets in the normal course of business (i.e. without any requirement or specification of the buyer)
  • A contract for 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.

Payment / credits covered u/s 192, 194D, 194G, 194H, 194-I, 194J (Read Rate of TCS on Sale of Gold Coins, Bullion or Jewellery)

Reference: Section 194C of the Income Tax Act, 1961

Payments to contractors

194C. (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to—

(i)  one per cent where the payment is being made or credit is being given to an individual or a Hindu undivided family;

(ii)  two per cent where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family,

of such sum as income-tax on income comprised therein.

(2) Where any sum referred to in sub-section (1) is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

(3) Where any sum is paid or credited for carrying out any work mentioned in sub-clause (e) of clause (iv) of the Explanation, tax shall be deducted at source—

(i)  on the invoice value excluding the value of material, if such value is mentioned separately in the invoice; or

(ii)  on the whole of the invoice value, if the value of material is not mentioned separately in the invoice.

(4) No individual or Hindu undivided family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family.

(5) No deduction shall be made from the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor, if such sum does not exceed [thirty] thousand rupees :

Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds seventy-five thousand rupees, the person responsible for paying such sums referred to in sub-section (1) shall be liable to deduct income-tax under this section.

(6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, on furnishing of his Permanent Account Number, to the person paying or crediting such sum.

(7) The person responsible for paying or crediting any sum to the person referred to in sub-section (6) shall furnish, to the prescribed income-tax authority or the person authorised by it, such particulars, in such form and within such time as may be prescribed.

Explanation.—For the purposes of this section,—

(i) “specified person” shall mean,—

(a)  the Central Government or any State Government; or

(b)  any local authority; or

(c)  any corporation established by or under a Central, State or Provincial Act; or

(d)  any company; or

(e)  any co-operative society; or

(f)  any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or

(g)  any society 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; or

(h)  any trust; or

(i)  any university established 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); or

(j)  any Government of a foreign State or a foreign enterprise or any association or body established outside India; or

(k)  any firm; or

(l)  any person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, if such person,—

(A)  does not fall under any of the preceding sub-clauses; and

(B)  is liable to audit of accounts under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor;

(ii)  “goods carriage” shall have the meaning assigned to it in the Explanation to sub-section (7) of section 44AE;

(iii)  “contract” shall include sub-contract;

(iv)  “work” shall include—

(a)  advertising;

(b)  broadcasting and telecasting including production of programmes for such broadcasting or telecasting;

(c)  carriage of goods or passengers by any mode of transport other than by railways;

(d)  catering;

(e)  manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer,

but 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.

Rate of TDS on Fees For Professional Services under section 194J of the Income Tax Act

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9 thoughts on “Rate of TDS on Payment to Contractor and Sub Contractor under Section 194C of the Income Tax Act
  • Sunil Kumar Jain says:

    1.TDS from payment to Contractors or Sub- Contractors how much exemption Limit?

    2. If above exemption cross how much deduct % ? whether 2% or 10% (Please explain 10% deduct which contractors?

  • halim hashmi says:

    DEAR SIR,

    IN CASE OF “TRUST”, what is the percentage of TDS deduct in 1 % or 2 %.

    Regard

  • priteshmodhia says:

    dear sir, it is my questions that if what is the rate of TDS is to be deducted on the house keeping service bill? material Provided Housekeepingservices like romm freshner milk pouch tea powder acid & finel purchase on behauf of us show how calculate on tds rate example housekeeping services bill rs 10000/- & reimbursement bill RS 5650 so we count on tds

  • arun says:

    from how much amount tds should be deducted….? and also for service tax…..?

  • yash joram says:

    how many dedication to contractor of water suppler

  • M.Narasimhan says:

    Can we deduct TDS for supplying electrical goods on contract?

  • mahesh says:

    Can we consider other work than specified in the definition of work here, like marketing and selling, designing, clerical role and such other office activities?

  • Thomas says:

    I am an NRI and I have to pay about Rs.1,8 lakhs to my Builder cum Developer, where I have booked a flat, towards VAT, CST, Works Contract Tax, Service Tax on contracts, Labour Cess, etc payments apportioned for my flat. Should I deduct TDS on the payment and at what rate.