Tds on Contracts (Sec 194C):

 

When is it Applicable? (Applicability)

 

  • Any Person who is responsible to pay sum of amount to a Resident Contractor for carrying out any sort of work which is in the nature of Contract,
  • Including payment made by a person (who is a Contractor) to a Sub-Contractor
  • Payment made towards Contract which involves Supply of Labour for Carrying out work is also included for this purpose
  • In case the Contractor is a Transporter who provides PAN, the payer NEED NOT DEDUCT TAX AT SOURCE on freight charges paid to such Transporter.
  • List of Types of Contracts for the purpose of Deducting Tax at Source:
    • Advertising
    • Broadcasting and Telecasting including production of programmes for such broadcasting or telecasting
    • Carriage of Goods and Passenger other than transportation in the mode of Railways
    • Catering
    • Manufacturing or Supplying of a product according to the specifications and requirements of the Customer (Payer) using material purchased from the same customer (Payer) [in case if the material is purchased from a third party then it would amount to purchase and same doesn’t attract tds provisions]

Who is Responsible to Deduct Tax at Source? (Who is a Payer for the purpose of TDS?)

For the purpose of this section a Payer (Person who makes payment) may be a:

  1. Central Govt. or any State Govt.
  2. Local Authority
  3. Central/ State Provincial Corporation
  4. Company
  5. Cooperative Societies
  6. Housing Board
  7. Trust
  8. University
  9. Any foreign Govt. or a foreign enterprise or any association or body established outside India
  10. Partnership Firm whether are not liable to tax audit
  11. Individual   (Read  “Note” Below)
  12. Body of Individuals (Read “Note” Below)

Note – Exception for Some Individuals, HUFs, AOPs or BOIs is explained below:

  • If the payer (person who makes the payment) is an Individual, HUF, BOI or AOP whose Turnover (Total Sales or Total Receipts) during the previous Financial Year is less than:
    • 1,00,00,000 (1 Crore) In case of Business for F.Y 2014-15 &
    • 25,00,000 (25 Lakhs) In case of Profession for F.Y. 2014-15.


For Example:

  • Assume today is 14/06/2014 which means you are in Fin. Year 2014-2015, Lets Say the Total Turnover, Sales or Receipts of the Sole Proprietor is 32,00,000 during Financial Year 13-2014 then you Need not Deduct Tax at Source since your Total Sales is less than 1,00,00,000 during previous year
  • In case the Individual who is in Profession (Doctors, Lawyers, Chartered Accountants, etc., )he should deduct TDS because the Total Receipts is 32,00,000 which is more than 25,00,000

 

Threshold Limit for Deduction

  1. If any single sum of amount paid or credited (to be paid) to the contractor exceeds Rs. 30,000/- (or)
  2. The Aggregate amount of such sums credited or paid to the contractor during the Financial Year exceeds Rs 75,000/-

 

For Example:

Illustration – 1

       If “X” is required to make a payment of Rs. 15,000/- to a Contractor “Y” for the first time during the financial year i.e., the first payment to be made to “Y” since 01/04/2014 (For Current Financial Year) in such case,

  • “X”Need Not Deduct Tax at Source (TDS) because single payment is below Rs 30,000/-


Illustration – 2

Everything is same as above (Illustration – 1) except that Payment to be made is Rs. 31,000 instead of Rs 15,000/- in Such case:

  • “X” Should Deduct Tax at Source because Single Payment made is more than Rs 30,000/-

Illustration – 3

If “X” makes following payments to Contractor “Y” during this Financial Year

  • Paid Rs. 20,000/- on 10/04/2014
  • Paid Rs. 25,000/- on 15/05/2014
  • Paid Rs 26,000/- on 12/06/2014
  • Paid Rs 10,000/- on 14/07/2014
    • In Such Case “X” Need NOT Deduct tax at source on 10/04/2014, 15/05/2014 and 12/06/2014 because each Single Payment were below 20,000 and Aggregate of payments is Rs 71,000/- as on 12/06/2014 which is less than 75,000
    • BUT as on 14/07/2014 the Aggregate of Payments is 81,000 (20,000+25,000+26,000+10,000 ) which is more than 75,000 therefore :
      • “X” Should Deduct Tax at Source on 14/07/2014 for Total of Payments i.e., Rs 81,000/-  (Since he didn’t deduct any TDS for previous payments)
      • He should Deduct Tax at Source (TDS) for all Future Payments to “Y” till the end of Financial Year

How much Tax should I deduct at Source? (Rates of TDS on Contracts)

Following are the rates of TDS if the Contractor (Payee) provides his Permanent Account Number (PAN)

  • In case the Contractor/Sub-Contractor (Payee) is an Individual or HUF then – 1%
  • In case the Contractor/ Sub-Contractor (Payee) is a Partnership Firm, Company, BOIother than individuals – 2%

(Education cess should NOT be deducted)

 

NOTE: In case Contractor Fails to Provide Permanent Account Number (PAN) then TDS rate applicable is 20%

 

What if you fail to deduct tax at source?

 

If you either fail to deduct tax at source or if you fail to deposit the same after deducting the while calculating your Total Profits, expenditure towards contract in respective of which TDS was not made, to the extent not so made would be Added Back and your Total Profits for the purpose of calculating you Net Tax Liability would be increased by so much amount.