Section 194C -TDS on Payment to contractor or sub contractor
Here’s a quick guide on TDS on Contract- Section 194C. Sec. 194C of the Income Tax Act, talks about deduction of tax at source (TDS) on payments to contractor or sub contractor for certain types of work contracts.
The section applies to payments made by individuals, Hindu Undivided Families (HUFs), firms, companies, association of persons (AOPs), body of individuals (BOIs), and any other person, to a resident contractor or sub-contractor for carrying out any work, including supply of labor for carrying out any work.
Meaning of Work for the purpose of Section 194C
“Work” for the purpose section 194C include:
- broadcasting and telecasting including production of programmes
- 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 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.
What is Section 194C of the Income Tax Act?
As per section 194C, any person responsible for paying any sum to any resident for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract, shall, at the time of credit of such sum tor at the time of payment, whichever is earlier, deduct an amount equal to-
- 1% in case of payment to an individual or a Hindu undivided family;
- 2% where the payment is being made or credit is being given to a person other than an individual or a HUF,
Thus, According to Section 194C, the person responsible for making the payment is required to deduct TDS at the rate of 1% in case of individuals and HUFs payee and 2% for companies, if the payment to the contractor exceeds a certain threshold.
What is TDS exemption limit for contractor and sub-contractor?
Currently, threshold limit (exemption limit) specified under section 194C is Rs. 30,000 in case of single contact transactions and Rs.100,000 aggregate in a financial year.
Who is responsible to deduct TDS U/s 194C?
Any person (other than an individual or a HUF) who is responsible for paying to a resident contractor or sub contractor for carrying out any work (including supply of labor for carrying out any work) is liable to deduct TDS under Section 194C.
Therefore, It is the responsibility of the person making the payment to deduct TDS and deposit it with the government within the due date prescribed. The recipient of the payment can then claim a credit for the TDS amount while filing their tax returns.
Rate of TDS on Contract under Section 194C
The current TDS rate for contract services is 1% for individuals and HUFs, and 2% for companies. However, if the contractor does not have a PAN (Permanent Account Number), the TDS rate is higher at 20%.
- Payment to Individuals & HUFs contractor – 1%
- Payment to companies – 2%
However, in case the contractor doesn’t furnish his PAN, TDS will be deducted @ 20% i.e. at the maximum marginal rate.
Due Date of Deposit of TDS U/s 194C
TDS amount deducted, should be deposited on or before the due date prescribed under the act.
TDS deducted from April to February: within 7 days from the end of the month in which the deduction was made.
For the month of March: 30th April
FAQ regarding TDS on Contract payments -194C
TDS on contract payments is a deduction of a certain percentage of tax from the payment made to contractors for carrying out any work (including supply of labor for carrying out any work).
Any person (other than an individual or a HUF) who is responsible for paying to a resident contractor for carrying out any work (including supply of labor for carrying out any work) is liable to deduct TDS under Section 194C.
The rate of TDS on contract payments under Section 194C is 1% for individuals or HUF and 2% for other persons.
The threshold limit for TDS deduction under Section 194C is Rs. 30,000 currently for single contract transactions and Rs.100,000 aggregate in a financial year.
This means TDS will be deductible only if the payment to the contractor exceeds the specified threshold limit.
TDS on contract payments under Section 194C is applicable on all types of contract payments except for those made to an individual or HUF for personal services.
The deductor is required to obtain a PAN from the contractor and deduct TDS on the contract payment at the time of credit of such income to the account of the contractor or at the time of payment, whichever is earlier. The deductor must also deposit the TDS to the government account and furnish TDS returns.
The due date for TDS deposit under Section 194C is usually within 7 days from the end of the month in which the TDS is deducted.
The due date for TDS return filing under Section 194C is:
April – June (1st Quarter): 31st July
July – Sep (2nd Quarter): 31st October
Oct – Dec (3rd Quarter): 31st January
Jan – Mar (4th Quarter): 31st May