194 c income tax act
~ The requirements for tax deduction at source at the time of payment to contractors/subcontractors are covered under Section 194C.
~ According to this clause, tax must be withheld from all payments made to a resident contractor (or subcontractor) for the completion of any job, including the delivery of labour. A contract between the contractor and the contractee is also necessary to fulfil the aforementioned criterion.
~ When a single payment exceeds Rs. 30,000 or Rs. 1,000,000 cumulatively during the year, TDS must be withheld. Tax deductions must be made at 1% (for individuals and HUFs) and 2%, respectively (others).
Who must deduct TDS pursuant to Section 194C?
~ Central or State Government
~ Local Authority
~ Co-operative Society
~ Registered Society
What is the TDS tax rate and when is TDS u/s 194C deducted?
~ The tax deduction rate under Section 194C is either 1% (where payment is made to an individual or HUF) or 2%. (when given to others).
~ The income being credited to the payee’s (receiver’s) account, or the moment of deduction, whichever comes first.
~ Actual compensation (in cash, cheque, draught or other modes)
When must TDS be deducted under Section 194C?
~ TDS should be withheld by the individual making payments to resident contractors or subcontractors.
~ When the payment is made in cash, by check, by any other method, or when the amount is credited to the payee (whichever is earlier)
When doesn’t Section 194C apply?
~ The most that can be paid to the contractor under a single contract without going over Rs. 30,000.
~ TDS will be deducted if the total value of these contracts in a fiscal year exceeds Rs. 100,000.
~ When the contractor receives any payment from an individual or HUF for services rendered that are primarily for personal use.
~ When money is given to a company that transports goods and possesses no more than ten carriages at any given point in the previous year. Along with the PAN, the contractor must also provide a statement of the aforementioned.
How is TDS determined under section 194C?
The TDS is based on the invoice value. Let’s use an illustration to clarify:
Example: During the fiscal year 2019–20, A Ltd. pays Mr. A, a contractor, the following.
– Rs. 25,000 on June 1 and Rs. 30,000 on August 5
– Rs. 25,000 on August 12, 2019 – Rs. 28,000 on December 20, 2019
In the example above, a single payment did not surpass Rs. 30,000, therefore TDS was not required to be withheld at that time. However, on December 20, 2019, the total amount of payments made during the financial year exceeded Rs. 100,000, so TDS was withheld.
TDS WILL NOT BE DEDUCTED FROM THE FOLLOWING EXCEPTIONS:
~ The list of exclusions or situations where TDS won’t be taken from the person is provided below.
~ The total paid to or credited to the contractor under a single agreement cannot exceed Rs. 30,000 for services rendered in the hiring, employing, or leasing of goods carriage. If during the previous year, the Contractor did not own more than ten goods carriage (at any one time).
~ The statement and PAN must be given by the Contractor to the Deductor.
~ The Contractor’s share of the gross amount paid or credited throughout the financial year does not exceed Rs. 1,000,000.