194C - TDS on Contractor

A Specified person shall deduct TDS for any sum paid or payable to Contractor for “Work” done pursuant to a Contract.

• 1% if contractor is an Individual or HUF

• 2% if contractor is Company, firm etc. (Other than Individual & HUF)

Who shall deduct TDS? Specified Person given below:

• COMPANY

• Firm

• Co-operative Society

• Trust

• Individual/HUF/AOP/BOI provided such person:

does not fall under any of the other categories; and has total sales, gross receipts or turnover exceeding:

- 1 crore from business or

- 50 lakh rupees in case of profession

during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor;

• The Central Govt or any State Govt; or any local authority; or

• Society under society Registration Act

• any corporation established by or under a Central, State or Provincial Act; or

• any Government of a foreign State or a foreign enterprise or any association or body established outside India; or

• 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

• any university established or incorporated by or under a Central, State or Provincial Act

• an institution declared to be a university under section 3 of the University Grants Commission Act, 1956 (3 of 1956); or

AOP-Association of Persons BOI – Body of Individuals

Whether Individual or HUF required to deduct TDS?

1. Individual and HUF shall deduct TDS if turnover/sales/gross receipts in the preceding year exceeds:

• 1 crore for Businesses or

• 50 lakhs for professionals

2. Individual or Hindu undivided family shall not be liable to deduct TDS on the sum credited or paid to contractor exclusively for personal purposes

On whom TDS shall be deducted?

• TDS shall be deducted from payment to Resident Contractor.

• In case of Non-resident contractor TDS shall be deducted u/s 195 of IT Act.

Threshold for deduction

a) Single contract – 30,000

TDS shall be deducted if amount paid/credited or likely to be paid/credited exceeds 30,000

b) Multiple contracts 1 lakh

TDS shall be deducted if amount paid/credited or likely to be paid/credited in a FY exceeds 1 lakh

Illustrations

Single Contract 30,000 - TDS not required u/s 194C

Single Contract 35,000 - TDS applicable u/s 194C on 35,000

3 Contract – 30,000 each - TDS not required u/s 194C

4 Contract – 30,000 each - TDS applicable u/s 194C on 120,000

Point of Taxation: TDS shall be deducted at the EARLIER of followings:

• Book Entry: Credit of such sum to the account of the contractor

• Payment by any mode.

Crediting of sum to "Suspense account" or by any other name will attract TDS provision of this section.

Contractor engaged in the Business of Plying, hiring or leasing goods carriage

TDS shall not be deducted provided:

• Contractor owns ≤ 10 Goods carriage at any time during the PY (Max 10) AND

• Declaration of above along with PAN to the payer

Payer shall submit prescribed particulars to Income tax Authority

"Contract" shall include sub-contract;

"work" shall include—

• advertising;

• broadcasting and telecasting including production of programmes for such broadcasting or telecasting;

• carriage of goods or passengers by any mode of transport other than by railways;

• catering;

• manufacturing or supplying a product according to the requirement or specification of a customer AND by using material purchased from such customer or its associate as per clause (b) of sub-section (2) of section 40A

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 or associate of such customer].

Value to consider for TDS deduction in below Work:

Manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer or its associate.

Price of Material separately stated in the Invoice: TDS on Invoice Value excluding value of Material

Price of Material not separately stated in the Invoice: TDS on whole Invoice Value.