TDS Rates on Contracts for the Financial Year 2016-17 (Amendment)

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
    Types of Contracts for the purpose of Deducting Tax at Source u/s 194C
    a. Advertising
    b. Broadcasting and Telecasting including production of programmes for such broadcasting or telecasting
    c. Carriage of Goods and Passenger other than transportation in the mode of Railways
    d. Catering
    e. 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 2016-17 &
    • 25,00,000 (25 Lakhs) In case of Profession for F.Y. 206-17


For Example:

  • Assume today is 14/06/2016 (Fin. Year 2016-17), Lets Say the Total Turnover, Sales or Receipts of the Sole Proprietor is 32,00,000 during Previous Financial Year  i.e. 2015-16 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 in different installments during the Financial Year exceeds Rs. 1,00,000/- (w.e.f  1/06/2016) Rs 75,000/- (prior to 01/06/2016)

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 01/04/2016 (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 10/04/2016
  • Paid Rs. 25,000/- on 15/05/2016
  • Paid Rs 26,000/- on 12/06/2016
  • Paid Rs 10,000/- on 14/07/2016
  • Paid Rs. 20,000/- on 16/08/2016
    • 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 1,00,000
    • As on 14/07/2014 the Cumulative Aggregate of Payments is 81,000 (20,000+25,000+26,000+10,000 ) which is more than 75,000 but w.e.f 01.06.2016 as per new amendment where the aggregate does not exceed 1,00,000, person responsible to pay need not deduct tax at source hence in such case :
      • “X” should not deduct tax at source on 14/07/2016 for Total of Payments i.e., Rs 81,000/-
    • But as on 16.08.2016, the cumulative aggregate of payments is 1,01,000/- which is more than 1,00,000 hence the payer  should deduct at source on total 1,01,000 at prevailing rate and remit the net amount to the contractor


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)

Contractor/Sub-Contractor (Payee) Rate of TDS
Individual or HUF 1%
Partnership Firm, Company, BOI other 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 then apart from paying interest; then you will be treated as “Assessee-in-default” hence while calculating your Total Profits for the FY 2016-17, expenditure towards contract in respective of which TDS was not made, to the extent of 30% of so much amount not so deducted would be Added Back to your Total Profits and will not be considered as expenditure, consequently your Tax Liability will increase proportionately in the year of failure, but if you deduct tax at source in the subsequent years for the said amount you can claim such expenditure in the year of deduction and remittance to govt account.

 

PS: Many of our blog users have query regarding TDS in case of employment on contract basis, in such case TDS should be made considering such payment as Salary and not as contract as long as Employee – Employer relationship exists.


Last updated: 11th June 2016

Dilip Kumar

+Dilip Kumar (Author and Editor of The Tax Info) is a CA Student from Hyderabad, Loves Blogging on Tax related matter.

You can Subscribe for his updates on Facebook & Google+

 

37 thoughts on “TDS Rates on Contracts for the Financial Year 2016-17 (Amendment)

  • July 17, 2015 at 10:40 am
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    Sir,
    We are into Industrial supply , we take projects on Turnkey basis , i.e. supply & Installation. Now I would like to know if my client will deduct TDS on the Installation Charges only or on the Total Amount of bill including cost of material & Installation Charges. Say Material cost is 5,00,000/- & Installation Charges – 1,00,000/- , then TDS would be @1% on 1,00,000/- ( i.e. Rs.1000/- ) or on 6,00,000/- ( i.e Rs. 6,000/- ) Please Guide.

    Reply
  • January 31, 2015 at 11:35 am
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    Dear sir,
    I am working in a construction company .I have to pay labour payment, how can i cut TDS and how much percentage on labour payment should I deduct . No TDS is required to be deducted in First year of Business , is it true? Plz sir inform me the details.

    Reply
    • February 1, 2015 at 7:42 am
      Permalink

      Is it a Private Limited Company or Partnership firm or a Sole Proprietorship?

      Reply
  • November 4, 2014 at 1:50 pm
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    Good afternoon sir please inform us to how to calculate the service tax and tds in fright. I am working in supply chain management company. To give the full details about the account of fright and other information to become helpful for me

    Reply
  • September 22, 2014 at 3:55 pm
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    hello sir, i would like ur suggestion on a query i have a friend who is an individual Transporter was required to file tds return but has come in audit for the first time time in fy 13-14 so now is he liable to penalty under tds or is he exempt fr the first year as in he come under audit for the first time?

    Reply
  • August 28, 2014 at 12:12 pm
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    hey wld lyk ur suggestion on a query i hav a client who is an individual was required to deduct tds as per 194c bt has cme in audit for the first time time in fy 13-14 so nw is he liable to penalty under tds or is he exempt fr the first year as in he cme under audit for the first time? reply asap..

    Reply
  • August 11, 2014 at 10:48 am
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    Hello Sir,

    I am working in an NGO(on contract) and joined on 2 July 2014 .

    When i received my salary they deductd 700 Rs. as TDS .

    Is TDS deductible from my salary .

    my salary is around 23000 .

    Hemender .

    Reply
    • August 16, 2014 at 8:38 pm
      Permalink

      Can you give us the detailed breakup of your salary (Basic + HRA + PF etc.)so that we can calculate the exact TDS amount for you.

      Regards.

      Reply
  • May 28, 2014 at 5:16 pm
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    If “X” makes following payments to Contractor “Y” during this Financial Year

    Paid Rs. 20,000/- on 10/04/2013
    Paid Rs. 35,000/- on 15/05/2013
    Paid Rs 26,000/- on 12/06/2013
    Paid Rs 10,000/- on 13/07/2013

    Reply
  • March 18, 2014 at 3:28 pm
    Permalink

    i am having a query regarding TDS for contractors…can u help me ..i have no idea about all this things….
    i was working on contract as teacher in training institute with salary Rs.4000/- pm. I worked for 12 months and by totalling varing amounts i got in this 12 months is approx. Rs.43,290/- . I left the job on 31 Jan 14 . now 2 days back i got call from institute saying they need my pan card number and as my payment is above 30,000 so i have to pay TDS 10% = 3100 rupees. I am not having any idea about this.
    hope i will get an answer from you how this thing is calculated. i have already left my job 2 months back

    Kindly advice

    Reply
  • January 22, 2014 at 12:37 pm
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    sukhvinder:

    i have payment to contractor Rs.5000000 how to calculate tds. the contractor is company

    Reply
  • January 22, 2014 at 12:36 pm
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    Final bill of contractor Rs. 5200000 we have calculate tds 2 % Rs.104000 so we have paid to contractor which amount please tell me urgent

    Reply
    • January 22, 2014 at 5:56 pm
      Permalink

      Bill Amount – 52,00,000
      Less: Tax to be deducted at Source (TDS) @ 2% = 1,04,000

      Net Amount Payable to Contractor = 50,96,000

      Reply
  • January 22, 2014 at 12:27 pm
    Permalink

    i have payment to contractor Rs.5000000 how to calculate tds. the contractor is company

    Reply
    • January 22, 2014 at 12:50 pm
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      What kind of contract is it, break up of invoice & Few other details if you can provide?

      Nevertheless, from the brief information you provided the calculation would be as follow:

      Since the Contractor is a Company, TDS rate applicable is 2%

      i.e., 50,00,000 X (2/100) = Rs. 1,00,000/-

      (No Education Cess should be deducted)

      Reply
  • January 18, 2014 at 4:50 pm
    Permalink

    Will you please clarify the following doubt:

    Sum payable to a party is Rs.100/-. TDS of 2% has to be deducted.
    My doubt is whether we directly deduct Rs.2 ie. 2% of Rs.100/- or consider that the sum payable is Rs.100 which is inclusive of Tax amount. Whether we need to calculate tds on TDS amount also.
    In such case the receiver has the right to get Rs.98.039 and and not 98 and he needs to pay 2% of this amount as tax, Rs.1.961 and not Rs.2/ ,

    Reply
    • January 18, 2014 at 10:44 pm
      Permalink

      I got your question,

      If the sum payable to a party is Rs. 100
      the TDS should be calculated at 2% on 100 => 100*2%= Rs. 2

      The party has the right to receive only Rs 98 (100-2)

      The other treatment you are talking about (considering Sum Payable includes tax) does not apply in case of TDS but the same is an alternative treatment in case of Service Tax

      Reply
  • August 16, 2013 at 4:12 pm
    Permalink

    I am a doctor and working under contracted salary of Rs 29500/month.my employee is deducting Rs 2500 as TDS/MONTH.My savings under 80-c are more than one lakh/year. Is TDS DEDUCTION IS MORE OR NOT,KINDLY COMMENT.
    Dr anil sharma

    Reply
    • August 18, 2013 at 6:18 pm
      Permalink

      Hi Dr. Anil, Provide us full breakup of your salary viz-a-viz Basic Salary, PF, ESI, HRA, Conveyance etc., So that we can arrive at a correct TDS amount.

      Reply
  • Pingback: TDS and TCS Rates Chart for the Financial Year 2012-2013 (Asst. Year 2013-2014) | The Tax Info

  • May 16, 2013 at 4:45 pm
    Permalink

    Hello Sir,
    Could you please calculate how much should be the tds cutting per month.. my salary is 22800pm and working under Central govt institution under contract and my tds is made under section 194C. at present tds cutting is 10.3% per month which I think is a big amount. clarify me..
    Thanks,

    Reply
    • May 17, 2013 at 12:47 pm
      Permalink

      Even though you are working under Central Govt. Institution under contract basis, the nature of your relation with the institution is LIKELY to be an employee-employer relation and another thing which you mentioned in your question which suggests you that you are still a employee and not a outside party is that they are paying you “SALARY”, hence the Central Govt Institution is deducting TDS on Salary u/s 192 and not u/s 194C

      Coming to percentage, 10.3% in your case is correct percentage but that 10.3% is on amount exceeding 2,00,000 per annum.

      Assuming 22,800 p.m. is arrived after all deductions, then TDS amount in your case is Rs. 632/- p.m.

      If you want more accurate TDS amount, then send us full breakup of your Salary or pay slip to thetaxinfo [at] gmail.com or either you can comment in here below. We will happily respond.

      Reply
  • February 16, 2013 at 10:05 am
    Permalink

    i m working in a central govt office on contract basic. pl let me know whether i come u/s194 c or 194j if 194j pl give the reference
    thank u

    Reply
    • February 16, 2013 at 1:37 pm
      Permalink

      Can you specify the nature of your work since 194J has a list of professional services covered, so it depends on the nature of the service you are providing to the govt. office.

      Reply
  • February 7, 2013 at 12:23 pm
    Permalink

    thank u very much for ur support n providing detail information.

    Reply
  • January 15, 2013 at 1:15 pm
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    Dear Sir,

    We booked a stand for Exhibition held on Oct.2013. The total contract value is INR 218428 now we need to pay to advance 20% [38880+4806 [12.36 ST ] = INR 43686 on Jan 2013 and 30% on April 2013 balance 50% on August 2013. Please let me know how to I deduct Tax & How much TDS deduct on this payment?

    Thanks & Regards,

    Poonam R

    Reply
    • January 15, 2013 at 7:46 pm
      Permalink

      Is it October 2012 or 2013?

      From the details you provided, though you are using the term “contract” since the contract is that of paying rent towards exhibition stand, “Section 194 I” will be applicable in this case i.e, TDS on Rent (Land & Building) @ 10% (excluding Service Tax element)

      So TDS in your case is explained below:

      20% Installment – 43,686 (38,880+4,806) TDS=3,888
      30% Installment – 65,528 (58,320+7,208) TDS=5,832
      50% Installment – 109,214 (97,20+12,014) TDS=9,720

      Therefore your Total Contract Bill reads as follows

      Gross Bill Value – 1,94,400
      Add: Service Tax – 24,028

      Total Bill Value – 2,18,428
      Less: TDS – 19,440 (3,888+5,832+9,720)

      Net Bill to be paid to party – 1,98,988

      Reply
  • October 4, 2012 at 3:49 pm
    Permalink

    If a firm supply aggregates & the same firm provides transport with the same Pan No then is it valid that the firm with two names have a single pan no

    Reply
  • September 17, 2012 at 9:29 am
    Permalink

    Hi I am a small business offering video production services to my clients. How much TDS should my client cut from the total service amount i offer to them. Do I need to register myself in service tax. I am getting business in small amounts and it never went above 10,0000 someone told me that now it is mandatory to register every one on service tax no matter how much is his turnover Thanks in advance My business has a pan card so and most of the time my services are above 50,000 thousand please tell me how much TDS i should allow other person to cut …. we are partnership firm thanks in advance

    Reply
  • August 16, 2012 at 12:56 pm
    Permalink

    Dear Sir,

    This is bring to your information, Can any one give Clarification Regarding about Tds on Video graphy charges , Bcz I made Payment Rs 37000 /- to Video grapher our company is saying to me to deduct Tds on this Party. ? its True

    Pls reply any one on this email id krishna_jrg@yahoo.co.in

    Reply
  • June 30, 2012 at 6:35 pm
    Permalink

    We are a civil contractor. We have recd a contract from one of our client. We have transferred the same to one of our Sub contractor. Please advise we have to deduct the TDS from sub contractor becoz our client also deduct the TDS from us.

    Reply
  • April 24, 2012 at 1:05 pm
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    WHRTHER TDS TO BE DEDUCTED IN 1ST YEAR AUDIT OF PARTNERSHIP FIRM ON TRANSPORTERS U/S 194C, IF YES THAN PLEASE GIVE ME THE TDS RATES FOR WHICH TDS TO BE DEDUCT ON ABOVE SECTION.

    Reply
    • April 25, 2012 at 12:00 am
      Permalink

      Can you please elaborate what exactly you are asking for, will surely help you with your query

      Reply
  • April 13, 2012 at 3:48 pm
    Permalink

    Thanks for clarification of doubts!

    Reply
  • April 10, 2012 at 8:30 pm
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    In the example, you said TDS is to be made for all future payments to Y till the end of FY. Suppose on 14/08/2011, the payment is Rs 10,000. How is the calculation made? Single payment is Rs 10,000 for that month(less than Rs 30,000). The aggregate exceeds Rs 75,000, but TDS is already made on Rs 81,000. Can you help with this doubt? As on 14/08/2011, should TDS be made on the total of (81000+10000) (wont it amount to double taxation?) or shd it be made on just Rs 10,000?

    Reply
    • April 10, 2012 at 9:50 pm
      Permalink

      Obviously TDS should be made on Rs. 10,000/- and not on total because Tax was already deducted at source on Rs 81,000 earlier itself.

      In the example (which you are referring to), the reason I said TDS should be made on “Total of Payments” because the cumulative total of payments exceeds Rs. 75,000 for the first time on 13/07/2011, Since in the given example as there were no Payments made after 31/07/2011, So I said TDS should be made on Total of Payments.

      If in the same example if there were further payments made after 13/07/2011, I would have used TDS should be calculated on cumulative total of payments as on 31/07/2011
      Thereafter, tds on payments made after 31/07/2011 is calculated independently and not on cumulative total.

      Reply

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