What is section 194C of the Income Tax Act:
- Section 194C deals with the provisions for tax deduction at source at the time of payment to contractors/sub-contractors.
- This section says that any person who pays money to the resident contractor (or subcontractor) for carrying out any work (including the supply of labour) is required to deduct tax on such payment.
- The above condition also requires the existence of a contract between contractor and contractee.
- The TDS has to be deducted when the one time payment amount exceeds Rs.30,000 or RS.1,00,000 in aggregate during the year.
- The tax deduction has to be done at 1%(in case of individual & HUF) and 2%(others).
Who is required to deduct TDS u/s 194C:
Any specified person making payment to a resident contractor for carrying out work is required to deduct TDS.
Specified person here means :
- Central or State Government
- Local Authority
- Corporation
- Company
- Co-operative Society
- Trust
- University
- Registered Society
- Firm
- any person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, except if such person, has total sales, gross receipts or turnover from business or profession carried on by him exceeding one crore rupees in case of business or fifty 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;
Work mean under section 194C:
- Advertising
- Broadcasting and telecasting (including the production of programmes)
- Carriage of goods and passengers using any mode of transport (but not railways)
- Catering
- Manufacturing or supply of a product as per the specification of a customer by using the material purchased from him/her. But does not include manufacturing or supplying a product according to the specification of a customer by using material purchased from other than such customer.
What is the TDS tax rate:
The rate of tax deduction u/s 194C is-
– 1% (when payment is given to Individual/HUF) or
– 2% (when given to others).
And the time of deduction is earlier of
– The credit of income to the account of the payee (receiver) or
– Actual payment (in cash, cheque, draft or other modes)
Due date of TDS deposit and Filing of TDS returns:
The Deductor is liable to deposit TDS with the Government with following dates
| Particulars | Due date of Deposite |
|---|---|
| April-February | 7th of Next following next Month |
| March month | 30th April |
The Deductor is liable to File TDS Returns with the Government with following dates
| Quarter | Due Date for Return |
|---|---|
| April to June | 31st of July |
| July to September | 31st of October |
| October to December | 31st of October |
| January to March | 31st of May |
Section 194C not applicable:
- The amount of payment made to the contractor in a single contract which does not exceed Rs.30,000.If the aggregate amount of such contracts in a financial year exceeds Rs.1,00,000 then TDS will be deducted.
- When any amount is paid to the contractor by an individual or HUF for carrying out work in the nature of personal use.
- When payment is made to a goods transport agency (in the business of plying, hiring or leasing goods) which owns 10 or fewer carriages at any time during the previous year. Also, the contractor has to submit a declaration of above along with PAN.
- If payment is made to a non-resident contractor or sub-contractor.
TDS in case of composite work u/s 194C:
As discussed above, when work includes manufacturing or supply of a product as per the specification of a customer by using the material purchased from him/her. In such case, TDS will be deducted on:
- Invoice value excluding the price of the material (if it is indicated separately in the invoice).
- Total invoice value, when the price of the material is not indicated separately.
consequences of non-compliance of section 194C:
- If the specified person does not deduct the TDS or deduct the TDS but not deposited to the government on time then interest is required to be paid on such amount as @ 1% per month or part of the month.
- The person is not eligible to claim the deduction of such expenses from PGBP income if TDS is not deducted on time. The amount of disallowed expenses shall be 30% of payment.
- However if TDS is deposited in subsequent years then expense will be allowed in the year of payment of TDS.
Illustration For More Understanding:
Onlinesolves Private Ltd has made following payments on various dates in financial year 2022-23 to Local Search Ltd. towards work done under different contracts:
| Contract Number | Date of payment | Amount (Rs) |
|---|---|---|
| 1 | 05/05/2022 | 20,000 |
| 2 | 06/06/2022 | 15,000 |
| 3 | 08/08/2022 | 25,000 |
| 4 | 10/12/2022 | 25,000 |
| 5 | 29/01/2023 | 17,000 |
Onlinesolves Private Ltd claims that it is not liable for deduction of tax at source u/s 194C. Examine the correctness of the claim made by the company. What would be the position if the value of the contract no. 5 is 14,000 only and there was no further contract during the year?
Answer:
As per section 194C(5) tax has to be deducted at source where the amount credited or paid or likely to be credited or paid to a contractor or sub-contractor exceeds 30,000 in a single payment or 1,00,000 in during the financial year.
Therefore, in the given case, even though the value of each individual contract does not exceed 30,000, the aggregate amount exceeds 1,00,000. Hence, Onlinesolves Private Ltd ‘s contention is not correct and tax is required to be deducted at source on the whole amount of 1,02,000 from the last payment of 17,000 towards contract no.5 on account of which the aggregate amount exceeded 1,00,000.
However, no tax deduction is to be made if the value of the last contract is 14,000 as the aggregate amount in such case would only be 99,000, which is below the aggregate monetary limit of 1,00,000.
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