Introduction:

TDS is a type of income tax that is deducted from the money received by an individual in rent, wage, commission, interests, etc. Section 194C requires TDS to be charged from any sum paid to a contractor or subcontractor.

What exactly is Section 194C?

Section 194C requires an individual to pay a price to any resident contractor in order for them to do any task assigned to them. Contract conditions under Section 194C apply between a resident contractor and the parties listed below:

  • A co-operative society
  • The Central Government and the State Government
  • The local government
  • A business
  • A corporation formed by or with the authority of federal, state, or temporary legislation.
  • Trust
  • Any authority formed in India by legislation to interact with and satisfy housing requirements, or to design, develop, or renovate towns, cities, or villages,
  • Deemed university or university
  • A company
  • Any society established in any portion of the country under the 1980 Society Registration Act or any comparable statute.

Below are some illustrations of what “work” entails in Section 194C:

  • Advertising
  • Broadcasting, Telecasting and, Programme development
  • Delivery of goods and people by methods other than railroads
  • Catering
  • Producing or delivering an item in response to a customer’s desire or demand by using obtained materials. However, if the materials are received from somebody other than the customer, it does not apply.

Who is a Sub-contractor?

Section 194C defines a sub-contractor as any person who fulfils any of the following conditions:

  • Engages into an agreement with a contractor for the execution of a work,
  • Carries out the entirety or a portion of the work conducted by a contractor under an agreement with any authority for labour supply
  • Delivers labour, whether totally or partially, that a contractor has agreed to supply under the conditions of his agreement with the agencies listed in Section 194C.

What conditions must be satisfied when compensating contractors?

When making a payment to the contractor, the following requirements must be met:

  1. Payment is given to any resident subcontractor as specified in Income Tax Act Section 6.
  2. The accomplishment of any work, such as the supply of labour, needs to be compensated.
  3. The payment is owed to the resident contractor instead of an individual.
  4. The contract’s value, for which the payments is made, should be at least 30,000 INR.
  5. The contractor must pay the sum due under an agreement he holds with the above-mentioned bodies.

TDS Rate

Payment Nature

Rate of TDS with available PAN details

Rate of TDS with PAN details not available

Rate of TDS from 14th May 2020 to 31st March 2021

Credit or Payment made to a Resident Individual or Hindu Undivided Family

1%

20%

0.75%

Credit or Payment made to a Resident Entity other than an Individual or Hindu Undivided Family

2%

20%

1.5%

Credit or Payment made to Transporters

0%

20%

0%

Please note that there will be no Education Cess, Surcharge, or SHEC. As a result, TDS will be deductible under Section 194C at the basic rate.

Exceptions to TDS Deductions for Payments made to Contractors

  1. When the government supplies materials, the issue is whether the TDS deduction will be based on the total payment made to the contractor/sub-contractor or the net payout, that is, the gross payout less any deductions. Because of materials given by the government, this issue will have to be resolved in the context of the conditions of the specific contract and the behaviour of both the parties involved.
  2. If the contractor has agreed to build a construction or a reservoir, and the government/another specified entity has agreed to provide all or part of the materials required for the job at specified prices, the TDS deduction will be based on the total payment without taking into account any cost of materials tweaks.
  3. If the contractor has agreed to supply the labour required for the job, with the government supplying the required materials at all times, the total amount of payment to the contractor will be only the sum paid for the provided labour or services and exclude the cost of the components provided by government or any other designated persons.

When TDS is not deductible under Section 194C?

In the following situations, no TDS is needed to be deducted under Section 194C:

  1. If the amount paid in accordance with an agreement does not surpass 30,000 INR,
  2. If the total value of such amounts paid or expected to be paid during the fiscal year does not surpass the limit of 1,00,000 INR, the entity liable for paying such payments is not required to deduct TDS.
  3. Individuals or HUFs are not allowed to deduct taxes if the payment or credit provided to the contractor/sub-contractor is for private use.
  4. No individual or Hindu undivided family shall be obliged to deduct TDS on any payment to a resident contractor if such sum is paid solely for the personal benefit of such person or any HUF member.
  5. On presenting his PAN details, no TDS deduction shall be imposed from any amount paid or expected to be paid to the accounts of a resident contractor during the preceding year in the business of hiring, plying, or leasing cargo carriages to the entity paying the amount.

When does TDS need to be deposited?

  • When the payment is conducted by or on the government’s behalf – TDS needs to be deposited on that very day
  • When the payment is paid for purposes other than the government:
    1. If the payment is credited in March – TDS needs to be deposited before or on April 30th
    2. If the payment is credited in another month – TDS needs to be deposited within 7 days after the month’s end,

TDS certificates:

TDS certificates in Form No.16A must be given quarterly for payments apart from salary. According to Rule 31, everyone who is responsible for deducting tax from payments apart from salary must produce a TDS certificate with Form No. 16A. The document is due on the following deadlines:

Quarter Period

Government Deductor

Non-Government Deductor

April – June

August 15th

July 30th

June – September

November 15th

October 30th

October – December

February 15th

January 30th

January – March

May 15th

May 30th

Conclusion

Here you can take knowledge about how much tax will be deducted for 194C, who 194C contractors are, how to claim a tax deduction on 194C payments and the due date for TDS and other details.


FAQ’s

Section 194C controls the TDS provision that applies to anybody who pays any contractor for work performed under an agreement between a ‘specified person’ and a resident contractor.


If the payment has been made to a HUF or individual, the payer is obligated to deduct Tax Deducted at Source at 1%, and 2% rate if the payment has been made to anybody else.


TDS is needed to be deducted under Section 194C within the sooner of the following deadlines: 

  1. at the moment of credit
  2. At the moment of payment via cheque, cash, draft or any other means of payment.