Whoever said wishes don’t come true hasn’t explored our offers!
  • Section 194C

    Section 194C of the Income Tax Act deals with the tax deducted at source (TDS) that is to be compulsorily deducted from any payments that have been made to any person who is a resident contractor or a subcontractor. In other words, it encompasses all persons who have paid a resident contractor or subcontractor to carry out any kind of work. As per the provisions of this section, when a payment is made to a contractor, TDS will be required to be deducted by the party or person who has made the payment.

    Definition Of ‘Person’ As Per Section 194C:

    Under Section 194C of the Income Tax Act, a ‘person’ may be referred to as someone who enters into a contract with a contractor, to carry out work in exchange for payment. In this case, a ‘person’ may be any of the following entities:

    • A firm
    • A trust
    • A local authorised body
    • A company
    • The State Government or The Central Government
    • A co-operative society
    • A university
    • A corporation
    • A registered society
    • An authority incorporated for the purpose of fulfilling housing needs

    Constitution Of ‘Work’ As Per Section 194C:

    Under Section 194C of the Income Tax Act, the term ‘work’ constitutes any of the following:

    • Any work related to the manufacture or supply of any good or product in accordance to the specifications and needs of a client, wherein the manufacture of the product takes place by utilising materials bought from the client in question and not from any other person.
    • Any work related to advertising
    • Any work related to catering
    • Any work related to the production, telecast or broadcast of any programs for the same purpose
    • Any work related to the transport of goods, products and passengers through any means of transport with the exception of transport via rail

    Definition Of Contractor And Subcontractor As Per Section 194C:

    Under Section 194C of the Income Tax Act, a contractor and a subcontractor may be defined as follows:

    • A contractor is referred to as any person who agrees to be party to a contract involving any of the following entities for the purpose of conducting any form of work, which also includes supplying manpower to conduct such work:
      • The Central or State Government
      • A Corporation
      • A Company
      • A Localised Authority
      • A Co-operative Society
    • A Subcontractor is referred to as any person who agrees to be party to a contract involving a contractor mentioned above, for the purpose of the following:
      • Conducting either all or part of the work, which the contractor has agreed to undertake
      • Supplying manpower for all or part of the work undertaken by the contractor

    Application Of Section 194C:

    The provisions outlined under Section 194C of the Income Tax Act are only applicable to either

    • Works Contracts
    • Labour Contracts

    However, it is not applicable to any contract that deals with the sale of any goods or solely the supply of any goods or products.

    TDA deducted as per Section 194C is applicable only under the conditions mentioned below:

    • The contractor should be an Indian resident, as per the guidelines stated in Section 6 of the Income Tax Act
    • Any payment that has been made to the contractor must be carried out by any person as mentioned under Section 194C
    • The payment made must be done for the purpose of conducting any form of work, which may also include the supply of manpower for the purpose of conducting any kind of work
    • The payment in question must be carried out in accordance with the stipulations mentioned in the contract, to which both the payer as well as the contractor are privy to. The contract in question may be in either oral form or written form.
    • The amount of payment made between the two parties should not be in excess of Rs 30,000 at any given point in time
    • If the total of all payment or credit amounts given to the contractor by the payer is found to be in excess of Rs 75,000 over the course of the financial year, then the payer will be required to ensure that deduction of TDS takes place from the total payment amount
    • If the total of all advance payments made to the contractor is found to be in excess of Rs 30,000, then the payer will be required to ensure that deduction of TDS takes place from the total payment amount
    • If the total of all payments made to the contractor was initially found to not be in excess of Rs 30,000, but was later found to surpass this amount, then the payer will be required to ensure that deduction of TDS takes place from the total payment amount in accordance with previous payments made as well

    Non-Applicability Of Section 194C:

    The provisions outlined under Section 194C will not be applicable under the following conditions:

    • If, through the carrying on of any type of business, the payer in question has accumulated a total turnover that does not exceed the stipulated limit of Rs 1 crore over the course of the financial year that was completed prior to the the financial year during which the payment was made to the contractor
    • If, through the carrying on of any type of profession, the payer in question has accumulated a total turnover that does not exceed the stipulated limit of Rs 25 lakhs over the course of the financial year that was completed prior to the the financial year during which the payment was made to the contractor
    • If the payment made by an individual or Hindu Undivided Family (HUF) was diverted towards any expenses of a personal nature that have been incurred by the individual or HUF

    Deduction Of TDS As Per Section 194C:

    As per the provisions of Section 194C of the Income Tax Act, deduction of TDS will be made by the payer at any of the following times:

    • When the payment is made to the contractor or the subcontractor when the amount has been credited to either of their bank accounts
    • When the payment made to the contractor or the subcontractor is in the form of cash
    • When the payment made to the contractor or the subcontractor is in the form of a cheque
    • When the payment made to the contractor or the subcontractor takes place through any other payment method
    • When the payer transfers or credits any amount meant for a contractor or subcontractor to a ‘Suspense Account’ or any other account

    Rate Of TDS As Per Section 194C:

    As per the provisions of Section 194C of the Income Tax Act, the rate of TDS that is applicable depends on certain conditions mentioned below:

    If the payee or contractor possesses PAN:

    • TDS of 1% of the amount will be deducted from any payments or credits made to resident individuals or Hindu Undivided Families (HUFs)
    • TDS of 2% of the amount will be deducted from any payments or credits made to any party other than resident individuals or Hindu Undivided Families (HUFs)
    • No TDS will be deducted from any payments or credits made to any transporters

    If the payee or contractor does not possess PAN:

    • TDS of 20% of the amount will be deducted from any payments or credits made to resident individuals or Hindu Undivided Families (HUFs)
    • TDS of 20% of the amount will be deducted from any payments or credits made to any party other than resident individuals or Hindu Undivided Families (HUFs)
    • TDS of 20% will be deducted from any payments or credits made to any transporters

    Time Limit As Per Section 194C With Regards To Deposit Of Tax:

    Section 194C of the Income Tax Act, stipulates that tax must be deposited within a specified time frame, depending on who the payer is. The time limits specified are as follows:

    • If the payment is made by the government or on the government’s behalf then the tax must be deposited on the same day the payment is made
    • If the payment is made by any other non-government entity then:
      • The tax must be deposited on the 30th of April or any time prior to this date if the amount was paid to the contractor during the month of March
      • If the amount was paid to the contractor during any month other than March, then the tax must be deposited within a time frame of seven days after the end of that particular month during which the deduction took place

    Exemptions Under Section 194C:

    Certain circumstances exist under which the deduction of TDS under Section 194C of the Income Tax Act will not be applicable. These are as follows:

    • If the amount paid to the contractor or subcontractor in accordance to the stipulations of the contract is less than Rs 30,000 at any given time, then the payer will not be liable to deduct TDS
    • If the total amount paid to the contractor or subcontractor in accordance to the stipulations of the contract is less than Rs 75,000 over the course of the financial year, then the payer will not be liable to deduct TDS
    • If the amount paid to the contractor or subcontractor was made prior to the 1st of June 1972
    • If the amount was paid prior to the 1st of June 1973 in accordance to the stipulations of the contract entered into by either
      • A contractor and a co-operative society
      • A contractor and a subcontractor with regards to work conducted by the contractor for the co-operative society

    Frequently Asked Questions:

    1. What are the extra charges or cess that may be added at the time of deduction of TDS?

      No extra charges or cess such as education cess, service tax or surcharges will be applicable at the time of TDS deduction under Section 194C.

    2. How is TDS required to be deposited with the Central Government?

      The person who is responsible for deducting tax from the payment to the contractor, is required deposit the tax with the Central Government via a challan before the expiration of a specified time frame. These deposits can be made at any RBI, SBI or PSB branches. 

  • reTH65gcmBgCJ7k
    This Page is BLOCKED as it is using Iframes.