There is a duty of payer to deduct TDS u/s 194C on making of payment/credited to contractor. Contractor includes a sub-contractor. In this article we will discuss about the TDS deduction and related procedure on payment to contractors & sub contractors.
The article is up to date with latest amendment as per finance act 2017.
Quick Summary for TDS on Contract Payment Under Section 194C
|Person Responsible to Deduct Tax||Specified person|
|Exemption Limit||Rs. 30,000 for single payment or aggregate amount in the financial year does not exceed Rs. 1,00,000*|
|TDS Rates||Single Transaction to an Individual or HUF 1%|
Single Transaction to other than an individual or HUF 2%
In whole financial year to an Individual or HUF 1%
in Whole Financial year to other than Individual or HUF 2%
|Time of Deduction of TDS||At the time of payment or credit whichever is earlier|
|Time for Deposit of TDS||Within one week from the last day of the month of tax deduction, For month of March, before 30th April.|
|Certificate of TDS||Form 16A for each quarter is to be issued within 15 days from the due date for furnishing the statement of tax deducted at source under rule 31A i.e. on or before 15th August, 15th November, 15th February and 15th June|
|Quarterly Return of TDS||In Form No.26Q on or before 31st July, 31st October and 31st January for the first three quarters and on or before 31st May for the last quarter.|
|AO’s Certificate for Deduction at Lower Rate or Non Deduction||Yes, Application in Form No. 13 Appropriate Certificate to be issued by AO|
|Is Self Declaration by Payee for Non Deduction Admissible||No|
TDS Rates on Payment to Contractors
1% (where the payment is being made or credit is given to an individual or a HUF)
2% (where the payment is being made or credit is to be given to any other entity)
The rate will be NIL if the transporter quotes his PAN.
TDS shall be deducted @ 20% in case a deductee fails to furnish his Pan to the deductor (Sec. 206AA)
No surcharge, education cess and SHEC shall be added. Hence, TDS shall be deductible at basic rate.
Time of Deduction of TDS on Payment to Contractors
The payer will responsible to deduct TDS on contract payment at the time of payment or credit whichever is earlier.
Payment should be more than Rs. 30,000/- for one contract/each contract or Rs.1,00,000/- (w.e.f. 1-6-2016) in total for all the contracts. The deduction will be made when the payment credited or paid.
When the amount exceeds Rs. 30,000 then the deduction will be made on earlier amount also. The section 194 C is applicable for resident contractor only. For non-resident the section 195 will be applicable.
Time Limit to Deposit of TDS
Where the tax is deducted by the officer of the Government:
- on the same day where the tax is paid and
- on or before 7 days from the end of the month in which the deduction is made.
In any other case,
- on or before 7 days from the end of the month in which the deduction is made and
- on or before 30th April, where the income or amount is credited or paid in the month of March.
Time Limit for Issue of Certificate of TDS and Form
The payer should issue form 16A within 15 days from the due date of furnishing the statement/return. So the following is the time limit to issue of Form 16A for payment to contractor including Sub-contractor.
- 15th August
- 15th November
- 15th February
- 15th June
TDS Returns/Statement for TDS on Contractors u/s 194C
The payer should submit TDS return/statement in form no. 26Q for the payment to contractor including sub-contractors on or before;
- 31st July
- 31st October
- 31st January
- 31st May
Who will deduct TDS?
On the above payment TDS will be deducted but by whom? The following persons will deduct TDS.
- A state or central Government, local authority or corporation under the state or central Government
- Society/Co-operative society
- Trust/Authority for development of areas
- Foreign enterprises
- Individuals or HUF or AOP or BOI
Individual/HUF/AOP/BOI who has gross receipt/Sale/Turnover
For business: more than Rs. 1 crore (w.e.f.1/4/2012, A.Y.2013-14 onwards) Rs. 60 Lakh for A.Y. 2012-13.
For profession: Rs. 25 Lakh (w.e.f.1/4/2012, A.Y.2013-14 onwards), Rs. 15 Lakh for A.Y. 2012-13
Other Important Points
Examples of work contracts
Bank charges, oral contracts, piece rate contracts, advertisement contract, broadcasting contracts, travel agents, airlines, clearing & forwarding contracts, courier agencies, catering contracts, Professional & technical services and other contracts.
No TDS deduction on Payment to Transporters if PAN furnished
If the operators furnish his PAN to the deductor then deductor should not deduct TDS. But deductor will give the valid ‘PAN’ detail in the ‘Quarterly returns of TDS’ of the deductees within the time limit to get the exemption. It will be done only in the case of transporters, who engaged in the business of plying, hiring or leasing goods carriages.
On which amount TDS has to be deducted?
TDS will be deducted on the amount credited or paid for the services used. However, in the case of manufacturing or product in which the services have involved then the amount to deduct TDS is only for service used, if it is mentioned in the invoice. However, if there is not a separate amount for service, then the TDS will be deducted generally on the total amount of invoice.
Contractor and Sub-contractor
Giving service to someone for the price is called contract. Service provider will be called contractor. The contractor’s duty is to complete the task for which an agreement has executed. When contractor further enters into a contract with another person to do the jobs completely or partly that is called sub-contractor.
It may be any work, deduction u/s 194C will be applicable when the contracts are made for any work. The following are the positions when the liability will arise.
Any works examples like broadcasting, advertisement, carriage of goods, catering, any services, You can find more examples by visiting this link;
TDS Not on Service Tax
If services of contractor are liable for service tax, the invoice’s total amount includes the service tax, then the deductor will deduct TDS only on net amount not including service tax.
The other provisions like online deposit of TDS, Issue of TDS certificate, Quarterly Returns of TDS and penalty on failure to deposit TDS or statements are common like other nature of payments to deduct TDS.