TDS
Section 194C:
Sec 194C provides for deduction of tax from payment of works contract made to
contractor or sub-contractor. Any person carrying out any work in pursuance of a
contract between a specified person and the resident contractor is required to deduct
tax at source.
Who is liable to deduct tax?
Any person, other than an Individual or HUF, responsible for making payment to a
resident contractor or sub-contractor for carrying out any work (including supply of
labour) is liable to deduct tax at source under Section 194C.
However, an Individual or HUF who is liable to tax audit during the financial year
immediately preceding the financial year in which such sum is credited or paid, shall
deduct tax under section 194C.
Which works contract is covered under Section 194C?
It includes the following:
a) Advertising
b) Broadcasting and telecasting including production of programmes for such
broadcasting or telecasting
c) Carriage of goods and passengers by any mode other than railways
d) Catering
e) Manufacturing or supplying a product in accordance with requirement or
specification of a customer using material purchased from such customer. However,
it will not include material purchased from person other than customer.
f) Supply of labour for works contract.
What is the rate of Tax?
A. 1%, if payment is made to an Individual or HUF
B. 2%, if payment is made to any other person
The tax shall be deducted at these rates without including the surcharge, education
cess and secondary and higher education cess.
However, if PAN of recipient is not available, then tax shall be deducted at the rate of
20% in accordance with the provisions of Section 206AA.
When is TDS under Section 194C not applicable?
Tax is not required to be deducted in the following cases:
1. If amount is payable to a person who is engaged in business of plying , hiring or leasing
goods carriages and he does not own more than 10 goods carriage vehicle’s, during the
financial year. Such exemption is provided only if the recipient furnishes his PAN and payer
intimate’s the details to IT Dept. in TDS Return.
2. If amount paid or credited does not exceed Rs. 30,000 in a single payment and Rs. 1,
00,000 in aggregate during the financial year.
When is tax to be deducted?
Any person responsible for making payment to resident contractor/sub-contractor
should deduct tax at the time of actual payment to the payee or at the time of credit
to the accounts of the payee, whichever is earlier.
What is the time limit for payment?
Government Deductor Non-Government Deductor
Tax is paid without production Amount is paid or credited in
of an Income-tax challan on the the month of March on or
same day on which tax is before April 30
deducted
Tax deposited with Income-tax Amount is paid or credited
challan on or before 7th day before March 1 on or before
from the end of the month in 7th day from the end of the
which tax is deducted month in which tax is deducted
Issue of TDS certificate:
Every deductor is required to issue TDS certificate in Form 16A (For tax deducted on
payments other than salary) to the deductee on quarterly basis. Every deductor shall
issue Form 16A by downloading it from TRACES website and properly authenticated
by using digital signature or manual signature.
Time limit for filing TDS Return and TDS certificate:
Every deductor responsible for deduction of tax from payment other than salary
shall file quarterly return in Form 26Q and issue quarterly TDS certificate’s by
following dates:
Quarter Due date of filing Due date for TDS
TDS return Certificate
April to June 31st July 15th August
July to September 31st October 15th November
October to 31st January 15th January
December
January to March 31st May 15th June
What are the consequences of non-compliance?
A. Non-Deduction or Non-Payment of TDS on payment made to contractor/sub-
contractor on or before due date as specified in Sec 139(1) will lead to disallowance
under section 40(a) (ia)
TDS default If such expense is If such expense is
deductible in the deductible in any
current previous subsequent year
year
Tax is deductible but 30% of expenditure If tax is deducted in
not deducted is disallowed in the the subsequent year,
current year the expense (which
is disallowed in the
current year) will be
allowed in the year
in which TDS is
deducted and
deposited by the
assesse.
Tax is deducted in 30% of expenditure If tax is deposited
the current year but is disallowed in the after the due date of
is not deposited on current year filing income tax
or before due date of return, the expense
filing Income-tax will be allowed in
return the year of deposit
B. The deductor shall be deemed to be in default and he shall be liable to pay interest
in accordance with Sec 201(1A).
i) If a person fails to deduct tax:
Interest is levied at the rate of 1% per month or part of the month from the
date on which the tax was deductible to the date on which such tax is
deducted.
ii) If a person has deducted tax but after deduction has failed to
deposit tax :
Interest is levied at the rate of 1.5% per month or part of the month from the date on
which the tax was deducted to the date on which such tax is actually paid.
C. The Deductor will also be liable to pay fee under sec 234E for default in furnishing
quarterly TDS return in Form 26Q, which is Rs. 200 for every day during which
failure continues. However, the fees shall not exceed the maximum amount of TDS
deducted. It is mandatory to pay late fee before furnishing return.
Is deduction of Tax allowed at lower or nil rate?
Sec 197 allows deduction of tax at lower or nil rate. For this purpose, contractor or
sub-contractor has to file an application in Form 13 to the concerned Assessing
officer.
If Assessing Officer is satisfied that total income of the contractor /sub-contractor
justifies deduction of tax at lower or nil rate, then he may issue such certificate.
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12BA:perquiaites or profits in lieu of salay-employer to employee if salary exceeds
150000,others i6 itself
Section 194H
