An Overview of the TDS on Payment to Contractor under section 194C of Income Tax Act By Akansha Chambhare

An Overview of the TDS on Payment to Contractor under section 194C of Income Tax Act By Akansha Chambhare

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An Overview of the TDS on Payment to Contractor under section 194C of Income Tax Act By Akansha Chambhare

As per Section 194C of the Income Tax Act, any person. Onmaking a payment to anyresidents against any ‘work’ is required to do TDS (Tax Deducted at Source). The word “person. on” is different for the payer an payee and has been discussed in little detail hereunder:
Not all payment is covered by TDS but only payment against ‘work’ contract is covered by TDS U/s 194C. The “Work” contract for the purpose of section 194C includes the following:
  1. Catering;
  2. Advertising;
  3. Broadcasting and telecasting;
  4. Conveyance of goods/travellers,by any method of transport excluding railway;
  5. Production/supplying a product based on the specification of buyers. by utilising material acquired from the buyer. Nevertheless, it doesn’t bear when the material is purchased from an unspecified person. on other than the buyer.
The term ‘person” from the angel of the payer as mentioned above means either of the following:
i. Firm;
ii. Co-operative Society;
iii. Trust;
iv. Local Authority;
v. Certified Society;
vi. Company;
vii. Corporation founded by the Central, State, (or) Provincial Act;
viii. University established/incorporated by Central, State or Provincial Act;
ix. Administration employed either to deal with and satisfy the requirement for the residence accommodation or planning, development or advancement of town, village, and cities;
x. HUF or a person. on responsible for auditing under Sec. 44AB: Clause (a), or Clause (b) through the fiscal year just before the fiscal year in which the sum is credited or given to the Contractor.
xi. Government of a foreign state /an international enterprise or any association/body established outside India;
It may be noted that term ‘contract’ for the purpose of section 194C includes ‘sub-contract’ as well.
TIME OF DEDUCTION UNDER SECTION 194C
The most important question is with regard to the timing of TDS. If the deduction of TDS is to be done as per the provisions of Section 194C of the Income Tax Act, then the deductor must do it at the following time:
1. At the time of credit of sum to the contractor’s account
2. At the time of the payment in cheque or cash or any other mode
RATE OF TDS ON PAYMENT TO CONTRACTOR UNDER SECTION 194C:
When prerequisites of section 194C of the Income Tax Act is attracted, the deductor is required to deduct TDS at the following rates:
Particulars
TDS Rates (When PAN is Available)
TDS Rates (From 14 May 2020 to 31 March 2021)
TDS Rate (When PAN isn’t Availabe)
Payment to an individual or HUF
1%
0.75%
20%
Payment to a person. on other than an individual or HUF
2%
1.5%
20%
Payment or credit to transporter.
Nil
Nil
20%
How to deduct TDS in case of Job work material used by Contractor and material not used by Contractor?
There could be two situation in case of job work material transactions as under:
  1. Material is provided by the contractee,
  2. Material is not provided by the contractee but purchased and used by the contractor directly.
The TDS applicability would be different in both the situation above. The same is as under:
  1. In Case of Job Work Material is used by contractor
    a) If the value of Material is shown separately in the invoice then TDS deducted would be required on the value of invoice excluding the amount of Material value
    b) If the value of material is not separately in the invoice then TDS would be required on the whole amount of invoice value .
    Example:
    ABC Ltd has entered in to a contract with M/s. Ram furniture for making furniture for office . Ram furniture issued Invoice of Rs. . 1,50,000/-. Now, there are two possibilities
    Case 1 : Ram furniture shows separate amount of material used in work, say of Rs. . 50,000/-and Rs. 1,00,000/- is shown separately towards their charges. In this case, ABC Ltd shall be required to do TDS on amount of 1,00,000/- only as the material of Rs. 50,000/- would not be liable for TDS U/s 194C.
    Case 2: M/s. Ram Furniture not show separate amount of material used in the invoice of Rs. 1,50,000/-. In this case, TDS would be required to be done on the whole amount of Rs. 1,50,000/-
Threshold Limit of TDS:
It may be noted that TDS shall be applicable only if the amount of contract exceeds certain threshold limit.No TDS is required in case single contract is up to Rs.  30,000/- or aggregate contract value form single person is not exceeding Rs. 1,00,000/- in the financial year.
Example 1:

Sweet Pvt Ltd give contract for making sweets to Goolu Halwai . If payment as per following

Contract Date/ Payment Date
Payment Amount
TDS Applicable
Reason
14/04/21
27,000/-
NO
Single Contract is not exceed RS.  30,000/-.
17/05/21
28,000/-
NO
Single Contract is not exceed RS.  30,000/-.
15/06/21
25,000/-
NO
Single Contract is not exceed RS.  30,000/-.
12/07/21
22,000/-
YES
Aggregate contract exceed Rs.  100000 (27000+28000+25000+22000=102000).Here TDS deducted on Amount 1,02,000/-.
Example 2:-
Payment Date
Payment Amount
TDS Applicable
Reason
14/04/21
25,000/-
NO
Single Contract is not exceed RS.  30,000/-.
17/05/21
35,000/-
YES
Single contract is exceed Rs.  30,000/-.
15/06/21
20,000/-
NO
Single Contract is not exceed RS.  30,000/-.
12/07/21
29,000/-
YES
Now here Single Contract is not exceed RS.  30,000/-.But exceed the Limit of 1 lacs in FY (25,000+35,000+20,000+29,000=1,09,000) Hence TDS deducted. But on 35,000/- TDS already deducted, therefore (109000-35000= 74,000/- on TDS applicable)
Personal Expenditure / Contract:
It may be noted that no TDS  is required to be done if the contract is for Personal purpose of Individual /HUF. So, any payment against Marriage (catering), personal house property furniture, etc. will not be liable for TDS
Transporter:
TDS provision is totally different when it comes to payment to transporter. No TDS is required to be done if the payment is done to a transporter if such transporter does not own more than 10 vehicle at any time during the financial year. However, such transporter has to furnish the declaration with PAN to this effect to the payer.

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