TDS Under Section 194C | TDS on Payment to Contractor

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  • By Taxmann
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  • Last Updated on 2 August, 2022

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1. 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. 

Check out Taxmann's TDS Ready Reckoner which provides a detailed analysis of TDS & TCS provisions and guidance on controversial topics with supporting case laws. It covers section-wise TDS chapters, queries on TDS, Charts,FAQs on Section(s) 194P/194Q & 206C(1H)&Deferment of TDS on ESOPs by Start-ups.

2. 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. 

3. 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.

4. 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.

5. When is TDS under Section 194C not Applicable?

Tax is not required to be deducted in the following cases:
a). 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.
b). 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.

6. 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.
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7. What is the Time Limit for Payment of TDS? 

Government Deductor Non-Government Deductor
Tax is paid without production of an Income-tax challan on the same day on which tax is deducted            Amount is paid or credited in the month of March on or before April 30
Tax deposited with Income-tax challan on or before 7th day from the end of the month in which tax is deducted Amount is paid or credited before March 1 on or before 7th day from the end of the month in which tax is deducted

8. Issue of TDS Certification:

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. 

9. Time Limit for Filing TDS Returns and TDS Certification?

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 TDS return

Due date for TDS Certificate

April to June

31st July

15th August

July to September

31st October

15th November

October to December

31st January

15th January

January to March

31st May

15th June

10. 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 deductible in the current previous year

If such expense is deductible in any subsequent year

Tax is deductible but not deducted

30% of expenditure is disallowed in the current year

If tax is deducted in the subsequent 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 the current year but is not deposited on or before due date of filing Income-tax return

30% of expenditure is disallowed in the current year

If tax is deposited after the due date of filing income tax return, the expense will be allowed in 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.

Also Read:
TDS on Salary: Deductions, TDS Calculation with Example
Guidelines on Deduction of Tax at Source Under Section 194R
TDS Deduction on Payment of Certain Sum for Purchase of Goods

Disclaimer: The content/information published on the website is only for general information of the user and shall not be construed as legal advice. While the Taxmann has exercised reasonable efforts to ensure the veracity of information/content published, Taxmann shall be under no liability in any manner whatsoever for incorrect information, if any.

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