What is Section 194C?
Section 194C is nothing but a law stating that any individual is liable for paying any sum amount to the resident contractor for undertaking any work (comprising the labour supply) with the implementation of a contract between the contractor as well as the following:
- Any local authority
- Any State Government or the Central Government
- Any organization
- Any corporation set up under or by a Provision Act, State, or Central
- Any trust
- Any co-operative society
- Any society registered below the Society Registration Act, 1980 or below any such comparable law to the Act in any section of India
- Any deemed university or university
- Any authority constituted in India under or by any law, either engaged for the purpose of development, planning, or improvement of towns, cities, and villages or for the purpose of dealing with and satisfying the requirements for housing accommodation or for both
194C TDS Rate
According to the provisions of Section 194C of the Income Tax Act, the TDS rate applicable relies on several conditions given below:
If the contractor or payee has PAN:
- 1% TDS of the amount will be credited or deducted from Hindu Undivided Families (HUFs) payments or resident individuals.
- 2% TDS of the amount will be credited or deducted from any payments of any party other than Hindu Undivided Families (HUFs) or resident individuals.
- No TDS will be credited or deducted from any payments of any transporters
If the contractor or payee does not have PAN:
- 20% TDS of the amount will be credited or deducted from any payments of Hindu Undivided Families (HUFs) or resident individuals.
- 20% TDS of the amount will be credited or deducted from any payments of any party other than Hindu Undivided Families (HUFs) or resident individuals.
- 20% TDS will be credited or deducted from any payments of any transporters
Section 194C TDS Limit
If the payment made to the contractor is not more than Rs. 30,000, there would be no deduction of the TDS on payment to the contractor. However, if the sum of all such payments to be made or made during a fiscal year is more than Rs. 75,000, there would be a deduction of TDS under Section 194C. The 194C limit of the amount of Rs. 75,000 has been raised to Rs. 1,00,000 and it is applied from the fiscal year 2016-17 onwards. When it comes to the criteria for a minimum amount to be paid for TDS deduction, it has been described below with the use of some exemplary cases:
|Case||Particulars||TDS to be deducted or not|
|Case 1||Single contract of Rs. 30,000 in every year||No deduction|
|Case 2||Two contracts of Rs. 30,000 in every year||No deduction|
|Case 3||Three contracts of Rs. 30,000 in every year||TDS to be deducted on Rs. 90,000|
|Case 4||Single contract of Rs. 40,000 in each year||TDS to be deducted|
|Case 5||Five contracts of Rs. 15,000 each in a year||No deduction|
|Case 6||Six contracts of Rs. 15,000 in every year||TDS to be deducted on Rs. 90,000|
The TDS amount deducted on payment to the contractor is needed to do the deposit with the Government prior to the due date of the TDS payment. A return of TDS is also needed to be filed for the same that states the TDS amount deducted, the PAN No. of the individual getting the payment, the TAN number of the individual making the payment, and so on.
TDS on Contractor
Any individual who is liable to pay any sum amount to a resident contractor for undertaking any work (involving the labour supply for doing any work) under a contract will deduct TDS on payment to the contractor as per Section 194C during the period of such payment by cheque or in cash or by draft, whichever is earlier. Under Section 194C, the TDS on payment to the contractor would be deducted at the above-mentioned rates.
In case a payment is done to any resident sub-contractor under the contractor with the sub-contractor for the supply of labour or undertaking any work by the contractor, there would be a deduction of TDS @ 1% on the gross amount of receipt during the time of payment by DD (demand draft), or cheque, or in cash or via any other payment mode, whichever is earlier.
FAQs related to Section 194C TDS
1. What is the difference between Contract for Work and Contract for Sale?
Contract for Work: Even though few materials might have been used in the implementation of the contract, the main object of the contract is work and labour. When it comes to Contract for Work, the item is brought into existence by adopting labour and work and during the execution of the work, the materials are used.
Contract for Sale: The key object of Contract for Sale is the delivery of the possession of the movable property and the transfer of property although commodities might have been produced as per the specification and requirement of the client. Before the delivery of the product to the buyer, it has an identifiable existence, and the property title bestows with the buyer only on delivery.
2. Who is liable to deduct tax under Section 194C of the Income Tax Act, 1961?
Any person who is liable to pay any sum amount to any resident contractor for doing any work (including the labour supply for undertaking any work) in accordance with a contract who are as follows:
- Any firm;
- Any local authority;
- Any State Government or the Central Government;
- Any co-operative society;
- Any corporation set up under or by a State, Central, or Provisional Act;
- Any trust;
- Any society which is registered below the Societies Registration Act, 1860 or below any such law comparing to that Act in force in any section of India; or
- Any authority established in India under or by any law, either involved for the purpose of improvement, development, or planning of villages, towns, and cities or for both; or
- Any foreign enterprise or any foreign state government or any association or body constituted out of India; or
- Any university incorporate or established under or by a Provisional Act or State or Central and an academy introduced to be a university under section 3 of the University Grants Commission Act, 1956; or
- A body of individuals or an association of persons or a HUF or an individual (if not covered under aforesaid cases), has total gross receipts or turnover from business, total sales, or profession undertaken by him that exceeds 50 lakhs in case of the profession and 1 crore in case of business during the fiscal year immediately preceding the fiscal year in which such sum amount is paid or credited to the contractor’s account.
3. What are the cess or extra charges that may be included during the time of TDS deduction?
As per Section 194C, no cess or extra charges like service tax, education cess, or surcharges would be applied during the time of 194C TDS deduction.
4. Is there any circular that differentiates between the contract of work and any other contract?
Yes, Circular No. 681, dated 8-3-1994 issued by CBDT that expands on different types of contracts that might be listed within the definition of contract of work and also states the contract’s nature that might fall out of the preview of section 194C.