Section 194C of the IT Act, 1961 deals with the TDS that should be deducted if a person makes a payment to any resident contractor for carrying out any work. The existence of a contract between the specific individual and a resident contractor plays a huge role here and makes it mandatory to deduct TDS.
The rate of TDS depends on the nature of payment made, and it is essential to be aware of the intricacies of Section 194C TDS deduction to avoid unwanted hassles. Read on to know more!
Under Section 194C, a sub-contractor can be defined as any person who becomes a part of a contract with the principal or main contractor. For instance, let’s say Mr Singh signed a contract with an NGO to supply labour. He hires Mr Sharma to complete 40% of the work he has been contractually bound for with this NGO. In this scenario, Mr Singh will be the main contractor, and Mr Sharma will be the sub-contractor.
Note that the principal contractor will be deducting the TDS while paying the sub-contractor under Section 194C of the Income Tax Act. Note that the terms of the contract may require the sub-contractor to complete the entirety or a portion of the work that the main contractor has been assigned.
Also Read – How To Use Income Tax Calculator
The maximum TDS deductions on contractors under Section 194C of the Income Tax Act is given below:
Here’s a tabular representation of different 194C TDS rates as per various types of contractors or sub-contractors:
|Type of Sub-contractor/ Contractor||TDS Rate|
|Any individual or HUF||1%|
|Persons excluding individuals or a Hindu Undivided Family||2%|
Here, you must note that in case individuals do not provide their PAN details to the deductor, the TDS rate will be 20%. Furthermore, no surcharge, SHEC and education cess will be added to the above-mentioned TDS rates. Therefore, TDS must be deductible at basic rates.
A person making payments to resident contractors/ sub-contractors for carrying out a particular work should deduct TDS,
In order to understand the calculation of TDS under section 194C, you need to be aware of some intricacies associated with it. Note that you should always consider the value of your invoice (only the service component) while deducting TDS. The invoice value should exclude any consideration for the sale or purchase of any goods or materials.
Now, to understand TDS calculation, let’s assume a scenario where Mr Gupta has signed a contract with Mr Dutt to supply construction materials. Here, Mr Dutt is the contractor who has issued an invoice of Rs. 90,000. He has also provided an invoice breakup of Rs. 50,000 as the value of goods and the remaining Rs. 40,000 as the labour charges.
In this scenario,
While Section 194C TDS deductions are mandatory in specific cases, there are certain exemptions you should also know about.
There are specific circumstances where deduction of TDS on contractor 194C will not be applicable. Let’s check them out!
As per Section 194C of Income Tax Act, TDS must be deposited on or before these due dates:
|TDS Deducted||Due date for Deposit|
|For the months of April to February||You must deposit the TDS on or before the following month’s 7th day|
|For the month of March||You should submit the TDS before 1st May|
|If it is deducted for any month and the Government has made the payment||Same day|
With easy access to internet facilities, having complete information regarding Section 194C TDS deductions has become much easier. CBDT made it mandatory for deductors to issue TDS certificates in Form 16A by generating them through the TIN central system. Note that details of the TDS deposited can be checked in Form 26AS online.
Will Section 194C be applicable on the renting of equipment?
No, TDS deduction under Section 194C will not be applicable on renting of equipment. This is because it does not involve any work. However, note that provisions of Section 194I will be applicable for such services.
Does Section 194C apply to a person who resides outside India?
No, Section 194C is not applicable for individuals living outside India. Both the parties, such as contractors/ sub-contractors and the person they are entering into a contract with, must be residents of India.
How should the TDS be deposited with the Central Government?
The person who has entered into an agreement with a principal or sub-contractor for carrying out a particular work needs to deduct tax from the payment. That specific tax amount should be deposited with the Central Government via a challan before the due date.
What is the penalty for delayed or non-payment of TDS under Section 194C?
In case a deductor fails to deposit TDS, an interest of 1%/month will be applicable from the due date of deduction. If you delay paying TDS, an interest of 1.5%/month will be applicable from the actual deduction date. Furthermore, in case of delay in filing TDS return, a penalty of Rs. 200/day will be imposed.
Do I need to have a written contract with a contractor to attract TDS under Section 194C?
No, it is not necessary to have a written contract with any principal contractor or sub-contractor to attract TDS under Section 194C. Even if both parties agree verbally regarding any work, TDS can be deducted.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
|Section 112A||Section 50||Section 245|
|Section 80QQB||Section 32AD||Section 250|
|Section 35D||Section 143 (1a)||Section 115BAB|
|Section 143||Section 79||Section 140A|
|Section 17(2)||Section 3||Section 94A|
|Section 147||Section 80||Section 40A|
|Section 48||Section 115AD||Section 14A|
|Section 45||Section 285BA||Section 6|
|Section 36||Section 87A||Section 80GGA|
|Section 244A||Section 234E||Section 28|
|Section 197||Sectio 548||Section 194J(1)(ba)|
|Section 145A||Section 80P||Section 92CD|
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