Updated on November 28, 2024 01:25:05 PM
Under Section 194C, the tax is to be deducted at source when making any payment to a resident contractor or subcontractor for carrying out any work. This means that the government receives the share of taxes from the income earned by the contractors and subcontractors. For types of services, TDS deductions have to be made at the rate of 1% in the case of individuals and HUFs and at the rate of 2% for others. Also, no TDS is applicable if a single contract amounts to Rs. 30,000 and the aggregate of the contract in the previous year is up to Rs. 1,00,000. In this article, we have provided you with the entire details on the Section 194C tax deduction at source made to contractors and subcontractors.
Under Section 194C of the Income Tax Act 1961, the tax is to be deducted at the source of payment made to the resident contractor and subcontractor. This tax has to be deducted at source when paying any sum to a contractor on a work when an amount exceeds Rs 30,000 on a single transaction or aggregate of Rs. 1,00,000 in a financial year.
The TDS should be deducted at source if any person is responsible for paying sum to a resident contractor or subcontractor in pursuit of contractual agreement between contract and the:
The TDS under section 194-C is not applicable under the following circumstances : -
Under Section 194C of the Income Tax Act of 1961, work includes:
Note: In case of job work, TDS shall be applied to the invoice value, excluding the value of material purchased from the customer or associate , provided bifurcation is given in the invoice. If no bifurcation is given, then TDS shall be applied to the entire invoice value.
The rate of TDS payment to a contractor is 1% u/s 194C when the payee is an individual or HUF. and TDS @ 2% is deducted from the payment made to the other person (other than individual or HUF).
The rates applicable under Section 194C are as follows:
Payee | TDS Rate |
---|---|
Individual HUF contractor/subcontractor | 1% |
Other than HUF contractor/subcontractor | 2% |
Contractor in transport business (if PAN is furnished) | Nil |
Sub-contractor in transport business (if PAN is furnished) | Nil |
However, if PAN is not furnished, Tds rate will be 20% for all assessees.
Here is the threshold limit for deduction of TDS u/s 194C:
The meaning of Goods Carriage under Section 194C of the Income Tax Act 1961:
The term “motor vehicle” does not include vehicles having less than four wheels and with engine capacity not exceeding 25cc as well as vehicles running on rails or vehicles adapted for use in a factory or in enclosed premises.
The tax at source would be deducted under Section 194C at the time of credit of the sum to the account of the contractor, or at the time of payment thereof in cash, by issue of a cheque or draft or by any other mode, whichever is earlier.
Where the payment is made in any other case than the government:-
Following are the important points to be kept in mind while deducting TDS u/s 194C:
Here are the penalties and fines for TDS on payments made to contractors.
At Bizfoc, we specialize in providing you the best accounting services in filing your TDS. Here are the reasons why we are known for our services to our clients on filing TDS:
In general, we assist the client to solve their queries and doubts regarding the documentation, procedures, and fees for filling out the form. Other than making your filing successful, we help you make a better decision by covering every aspect of what you actually need to get your TDS.
Under Section 194C of the Income Tax Act 1961, the TDS is deducted @1% (for individuals/HUF) and @ 2% ( for others ) on payments made to resident contractors by any person other than an individual, HUF, AOP, or BOI on amounts exceeding Rs. 30,000 per contract or Rs. 1,00,000 per annum. Individuals/HUF who are liable for tax audits can make TDS deductions under this section. However, no TDS is required to be deducted if payment is made to a contractor (u/s 44AE) who furnishes a declaration along with his PAN and contracts for rendering professional services.
For seeking professional advice regarding the TDS deduction, you need to consider CA experts and professionals to get your filing TDS safely and accurately.
TDS does not apply if the reimbursement is simply a repayment of costs without any profit element. However, TDS may apply if the reimbursement includes any profit or service element.
Yes, TDS is applicable on payments made to contractors under Section 194C of the Income Tax Act.
Section 194C of the Income Tax Act mandates that any person making payments to resident contractors or subcontractors for performing work, including labor supply, must deduct TDS.
Non-compliance with Section 194C results in penalties, including: Interest of 1% per month for non/short deduction and 1.5% for non/short deposit under Section 201. For Late filing , Penalty of Rs. 200 per day, subject to maximum amount of TDS, under Section 234E.