Section 194C was introduced long back in 1972 by the Finance Act, 1972 with effect from 01.04.1972 and subsequently amended from time to time.
Under section 194C, deduction of tax at source is
required to be made from payments of any sums to resident contractors or
sub-contractors. Thus, following two situations are covered under section
194C:—
(i) Deduction of tax at source from payment to
resident contractors;
(ii) Deduction of tax at source from payment to
resident subcontractors.
Text of section 194C
Payments to contractors
[1][194C (1) Any person responsible
for paying any sum to any resident (hereafter in this section referred to as
the contractor) for carrying out any work (including supply of labour for
carrying out any work) in pursuance of a contract between the contractor and a
specified person shall, at the time of credit of such sum to the account of the
contractor or at the time of payment thereof in cash or by issue of a cheque or
draft or by any other mode, whichever is earlier, deduct an amount equal to—
(i) one per cent where the
payment is being made or credit is being given to an individual or a Hindu
undivided family;
(ii) two per cent where the
payment is being made or credit is being given to a person other than an
individual or a Hindu undivided family, of such sum as income-tax on income
comprised therein.
(2) Where any sum referred to in
sub-section (1) is credited to any account, whether called “Suspense account”
or by any other name, in the books of account of the person liable to pay such
income, such crediting shall be deemed to be credit of such income to the
account of the payee and the provisions of this section shall apply
accordingly.
(3) Where any sum is paid or
credited for carrying out any work mentioned in sub-clause (e) of clause (iv)
of the Explanation, tax shall be deducted at source—
(i) on the invoice value
excluding the value of material, if such value is mentioned separately in the
invoice; or
(ii) on the whole of the invoice
value, if the value of material is not mentioned separately in the invoice.
(4) No individual or Hindu
undivided family shall be liable to deduct income-tax on the sum credited or
paid to the account of the contractor where such sum is credited or paid
exclusively for personal purposes of such individual or any member of Hindu undivided
family.
(5) No deduction shall be made
from the amount of any sum credited or paid or likely to be credited or paid to
the account of, or to, the contractor, if such sum does not exceed [2][thirty]
thousand rupees:
PROVIDED that where the aggregate
of the amounts of such sums credited or paid or likely to be credited or paid
during the financial year exceeds [3][one lakh] rupees, the person
responsible for paying such sums referred to in subsection (1) shall be liable
to deduct income-tax under this section.
(6) No deduction shall be made
from any sum credited or paid or likely to be credited or paid during the
previous year to the account of a contractor during the course of business of
plying, hiring or leasing goods carriages, [4][where such contractor
owns ten or less goods carriages at any time during the previous year and
furnishes a declaration to that effect along with] his Permanent Account
Number, to the person paying or crediting such sum.
(7) The person responsible for
paying or crediting any sum to the person referred to in sub-section (6) shall
furnish, to the prescribed income-tax authority or the person authorised by it,
such particulars, in such form and within such time as may be prescribed.
Explanation : For the purposes of
this section,—
(i) “specified person” shall
mean,—
(a) the Central Government or any
State Government; or
(b) any local authority; or
(c) any corporation established
by or under a Central, State or Provincial Act; or
(d) any company; or
(e) any co-operative society; or
(f) any authority, constituted in
India by or under any law, engaged either for the purpose of dealing with and
satisfying the need for housing accommodation or for the purpose of planning,
development or improvement of cities, towns and villages, or for both; or
(g) any society registered under
the Societies Registration Act, 1860 (21 of 1860) or under any law
corresponding to that Act in force in any part of India; or
(h) any trust; or
(i) any university established or
incorporated by or under a Central, State or Provincial Act and an institution
declared to be a university under section 3 of the University Grants Commission
Act, 1956 (3 of 1956); or
(j) any Government of a foreign
State or a foreign enterprise or any association or body established outside
India; or
(k) any firm; or
(l) any person, being an
individual or a Hindu undivided family or an association of persons or a body
of individuals, if such person,—
(A) does not fall under any of
the preceding sub-clauses; and
(B) [5][has total sales,
gross receipts or turnover from business or profession carried on by him
exceeding one crore rupees in case of business or fifty lakh rupees in case of
profession] during the financial year immediately preceding the financial year
in which such sum is credited or paid to the account of the contractor;
(ii) “goods carriage” shall have
the meaning assigned to it in the Explanation to sub-section (7) of section
44AE;
(iii) “contract” shall include
sub-contract;
(iv) “work” shall include—
(a) advertising;
(b) broadcasting and telecasting
including production of programmes for such broadcasting or telecasting;
(c) carriage of goods or
passengers by any mode of transport
other than by railways;
(d) catering;
[6][(e) manufacturing or supplying a
product according to the requirement or specification of a customer by using
material purchased from such customer or its associate, being a person placed
similarly in relation to such customer as is the person placed in relation to
the assessee under the provisions contained in clause (b) of sub-section (2) of
section 40A,] but does not include manufacturing or supplying a product
according to the requirement or specification of a customer by using material
purchased from a person, other than such customer[7][or associate of such
customer.]
KEY NOTE
1. Substituted by the Finance
(No. 2) Act, 2009, with effect from 01.10.2009.
2. Substituted for “twenty” by
the Finance Act, 2010, with effect from 01.07.2010.
3. Substituted for “seventy-five
thousand” by the Finance Act, 2016, with effect from 01.06.2016. Earlier, the
quoted words were substituted for “fifty thousand” by the Finance Act, 2010,
with effect from 01.07.2010.
4. Substituted for “on furnishing
of” by the Finance Act, 2015, with effect from 01.06.2015.
5. Substituted for the words,
brackets, letters and figures “is liable to audit of accounts under clause (a)
or clause (b) of section 44AB” by the Finance Act, 2020, w.e.f. 1- 4-2020.
6. Substituted for the words
“manufacturing or supplying a product according to the requirement or
specification of a customer by using material purchased from such customer” by
the Finance Act, 2020, w.e.f. 1-4-2020.
7. Inserted, ibid.
Applicability of section 194C
Provisions of section 194C relating to tax deduction
from payment to contractors/sub-contractors are applicable only where contract
is either a “work contract” or a contract for supply of labour for “works
contract”, but not applicable for payments made under contract for sale of
goods or mere supply of goods.
One of the criteria to differentiate between
“contract for sale” and “works contract” is to determine the ownership
regarding goods in question. In case of works contract, even though a part or
whole of the materials used belongs to the contractor, yet the property in the
thing produced will be the performance whereas in the case of contract for sale
the things produced generally are the sole property of the party who has
performed the work before its delivery and such person and the property therein
passes only under the contract relating thereto to other party for price. Mere
transfer of property in goods used in the performance of a contract is not
sufficient. To constitute a sale there must be an agreement expressed or
implied relating to sale of goods and completion of the agreement by passing of
title in the very goods constructed to be sold.
Specified persons under section
194C who are required to deduct TDS
The section 194C(1) provides that any person
responsible for paying any sum to resident contractor for carrying out any work
(including supply of labour) in pursuance of a contract between the contractor
or sub-contractor shall be required to deduct at source in case the payment is
made by them:—
(i) The Central Government or any State Government;
or
(ii) Any local authority; or
(iii) Any corporation established by or under a
Central, State or “Provincial” Act; or
(iv) Any company; or
(v) Any co-operative society; or
(vi) Any authority constituted in India by or under
any law, engaged either for the purpose of dealing with and satisfying the
needs for housing accommodation or for the purpose of planning, development or
improvement of cities, towns and villages or for both (e.g., CIDCO, HUDCO,
etc.); or
(vii) Any society registered under the Societies
Registration Act, 1860 or under any such corresponding law to the Act in any
Part of India; or
(viii) Any trust; or
(ix) Any university established or incorporated by
or under a Central, State or Provincial Act and an institution declared to be a
university under section 3 of the University Grants Commission Act, 1956 (3 of
1956); or
(x) Any firm; or
(xi) Any individual or an HUF (Hindu undivided
family) whose books of accounts are required to be audited under section
44AB(a)/(b) during the immediately preceding financial year and sum credited/ paid
to the account of the contractor is not exclusively for personal purposes; or
In other words, only assessees who are liable to
audit due to turnover or receipts greater than Rs. 1 crore or Rs. 50 lakh, as
the case may be.
With effect from 01.06.2008 – AOP/BOI whose books of
accounts are required to be audited under section 44AB(a)/(b) during the immediately
preceding financial year.
(xii) Any Government of a foreign State or a foreign
enterprise or any association or body established outside India (applicable
from 01.10.2009).
“CONTRACTOR”
A “Contractor” for the purpose of the provisions of
this section would be any person who enters into a contract with the Central Government
or any State Government, any local authority, any corporation established by or
under a Central, State or Provincial Act, any company or any co-operative
society for carrying out any work including the supply of labour for carrying
out any work.
Sub-Contractor as per Section
194C
A “sub-contractor” would mean any person:
·
who
enters into a contract with the contractor for carrying out, or
·
for
the supply of labour for carrying out the whole or part of the work undertaken
by the contractor under a contract with any of the authorities, or
·
for
the supply of, whether wholly or partly, any labour which the contractor has
undertaken to supply in terms of his contract with any of the authorities
mentioned under this section.
Condition precedent for deduction
of tax at source from payment to contractors [Section 194C(1)]
The following conditions must be satisfied for
applicability of this section:—
(i) The payee, i.e., contractor must be resident in
India within meaning of section 6 of the Income Tax Act.
(ii) Payment should be made by any person specified
above.
(iii) Payment should be made for carrying out any
work including supply of labour for carrying out any work.
(iv) The payment should be made pursuant to a
contract whether oral or written between payer and payee.
(v) The consideration of a contract in respect of
which payment is made should exceed Rs. 30,000 at a time.
(vi) If aggregate of the amount of such sums
credited or paid or likely to be credited or paid in the financial year exceeds
Rs.1,00,000 (Rs. 75,000 - up to 31.05.2016) TDS is required to be deducted.
(vii) Where advance payments are made, tax will have
to be deducted if the total payment is likely to exceed Rs. 30,000.
(viii) Where it was expected that the total
consideration would not exceed Rs. 30,000 but later on, it was found that consideration
would exceed Rs. 30,000, tax will have to be deducted in respect of earlier payments
also.
Non-applicability of Section 194C
in the following cases
PAYMENT TO TRAVEL AGENT/AN AIRLINE
Payment made to Travel agency or an airline for
purchase of a ticket for travel is not liable for TDS under section 194C.
However, if any plane/ bus/any other mode of transport is chartered, TDS is
applicable.—CBDT’s Circular No. 713, dated 02.08.1995.
HIRE CHARGES
Section 194C is not applicable in case of payments
made for hiring/renting of equipments etc.—[CBDT’s Circular No. 681, dated
08.03.1994]
FIXED DEPOSIT COMMISSION/BROKERAGE
Fixed Deposit Commission/Brokerage is not covered
under section 194C.—[CBDT’s Circular No. 715, dated 08.08.1995]
PROCUREMENT OF ORDERS
Rendering services for procurement of orders is not
covered by Section 194C (But covered by section 194J).—[CBDT’s Circular No.
715, dated 08.08.1995]
Applicability of TDS provisions
on payments by broadcasters or Television Channels to production houses for
production of content or programme for telecasting [Circular No. 04/2016, dated
29.02.2016]
The issue under consideration is whether payments
made by the broadcaster/telecaster to production houses for production of
content/ programme are payments under a ‘work contract’ liable for tax
deduction at source under section 194C or a contract for ‘professional or
technical services’ liable for tax deduction at source under section 194J.
In this regard, the CBDT has clarified that while
applying the relevant provisions of TDS on a contract for content production, a
distinction is required to be made between:
(i) a payment for production of content/programme as
per the specifications of the broadcaster/telecaster; and
(ii) a payment for acquisition of
broadcasting/telecasting rights of the content already produced by the
production house.
In the first situation where the content is produced
as per the specifications provided by the broadcaster/telecaster and the
copyright of the content/ programme also gets transferred to the telecaster/
broadcaster, such contract is covered by the definition of the term ‘work’ in
section 194C and, therefore, subject to TDS under that section.
However, in a case where the telecaster/broadcaster
acquires only the telecasting/broadcasting rights of the content already
produced by the production house, there is no contract for ‘’carrying out any
work”, as required in section 194C(1).
Therefore, such payments are not liable for TDS
under section 194C. However, payments of this nature may be liable for TDS
under other sections of Chapter XVII-B of the Act.
Deduction of tax at source from
payment to sub-contractors [Section 194C(2)]
Any person (being a contractor and not being an
individual or a Hindu Undivided Family) responsible for paying any sum to any
resident (hereafter in this section referred to as the sub-contractor) in
pursuance of a contract with the sub-contractor for carrying out, or for the
supply of labour for carrying out, the whole or any part of the work undertaken
by the contractor or for supplying whether wholly or partly any labour which
the contractor has undertaken to supply shall, at the time of credit of such
sum to the account of the sub-contractor
or at the time of payment thereof in cash or by issue of a cheque or draft or
by any other mode, whichever is earlier, deduct amount equal to one per cent of
sum as income-tax on income comprised therein.
Conditions precedent for
deduction of tax at source from payment to subcontractors [Section 194C(2)]
The following conditions must be satisfied for
applicability of section 194C(2), i.e., where the payment is made to
sub-contractors:—
(i) Payment is made to a sub-contractor who is
resident within the meaning of section 6 of the Income Tax Act, 1961.
(ii) Payment is made by a resident contractor, not
being an individual or an HUF.
(iii) Payment is made to carry out any work,
including supply of labour to carry out any work.
(iv) The amount of consideration of the contract in
respect to which payment is made should not be less than Rs. 30,000.
(v) The amount is paid or credited after 31.05.1972.
(vi) A contractor who is an individual or Hindu
Undivided Family is exempt from the obligation of tax deduction while making
payment to sub-contractors.
(vii) The sum should be credited or paid by the
contractor in respect of a contract undertaken by him with the specified
bodies.
Exemption from deduction of tax
at source in certain cases [Section 194C(3)]
No tax is required to be deducted at source under
section 194C(1) and 194C(2) in the following cases:—
(i) Where the sum is credited or paid in pursuance
of any contract, the consideration for which does not exceed Rs. 30,000, or
where the aggregate of the amounts of such sums credited or paid or likely to
be credited or paid during the financial year does not exceed Rs. 1,00,000, the
person responsible for paying such sums will not deduct TDS under this section.
(ii) Where the sum is credited or paid before the
1st June, 1972.
(iii) Where the sum is credited or paid before 1st
June, 1973 in pursuance of a contract between the contractor and the
co-operative society or in pursuance of a contract between such contractor and
the subcontractor in relation to any work (including supply of labour) undertaken
by the contractor for the co-operative society.
(iv) Individual or HUF not to deduct tax if the
payment or amount credited to contractor is for personal use. No individual or
HUF shall be liable to deduct income-tax on the sum credited or paid to the
account of the contractor where such sum is credited or paid exclusively for
personal purpose of such individual or any member of HUF.
Individual or HUF not to deduct
tax if the payment or amount credited to contractor is for personal use
[Section 194C(4)]
No individual or Hindu Undivided Family shall be
liable to deduct income-tax on the sum credited or paid to the account of the
contractor where such sum is credited or paid exclusively for personal purpose
of such individual or any member of Hindu Undivided Family.
Where no tax is to be deducted at
source [Section 194C(5)]
In the following cases, tax is not required to be
deducted at source:—
·
No
deduction shall be made from the amount of any sum credited or paid or likely
to be credited or paid to the account of, the contractor, if such sum does not
exceed Rs. 30,000 (Rs. 20,000 upto 30.06.2010).
·
However,
where the aggregate of the amounts of such sums credited or paid or likely to
be credited or paid during the financial year exceeds Rs. 1,00,000 (Rs. 75,000
from 01.07.2010 to 31.05.2016 - and Rs. 50,000 upto 30.06.2010), the person
responsible for paying such sums shall deduct income-tax under this section.
·
Thus,
the tax will be required to be deducted at source where the amount credited or
paid to a contractor exceeds Rs. 30,000 at one time or Rs. 1,00,000 in the
aggregate during a financial year in spite of the fact that separate contracts
are entered into with that person.
In other words, the person responsible for making
payment to resident contractor/sub-contractor should deduct TDS either at the
time of crediting such sum to the account to the payee or at the time of
payment thereof in cash or by issue of a cheque or by any other mode, whichever
is earlier, when the amount of a particular contract exceeds Rs. 30,000/- or
the total amount of contract during the whole year exceeds Rs. 1,00,000/-.
Monetary limit for deduction
|
Period
|
Monetary limit |
|
|
|
Each
payment (in
Rs.) |
Aggregate
payments during the financial year (in Rs.) |
|
Payments/Credits
made on or before 31.05.2016 |
30,000
|
75,000
|
|
Payments/Credits
made on or after 01.06.2016 |
30,000
|
1,00,000
|
Provisions for payments and tax
deducted at source to transporters [Section 194C(6)]
No deduction shall be made from any sum credited or
paid or likely to be credited or paid during previous year to the account of a
contractor during the course of business of plying, hiring or leasing goods
carriages, on furnishing of his Permanent Account Number, to the person paying
or crediting such [Section 194C(6)].
TDS on account of a contractor
during the course of plying, hiring and leasing goods carriage
UPTO 31.05.2015
The earlier provision (upto 31.05.2015) provides
that no deduction of tax is required from payments made to the contractor
during the course of plying, hiring and leasing goods carriage if the
contractor furnishes his PAN to the payer.
FROM 01.06.2015 [Section 194C(6)]
No deduction shall be made from any sum credited or
paid or likely to be credited or paid during the previous year to the account
of a contractor during the course of business of plying, hiring or leasing
goods carriages, where such contractor owns ten or less goods carriages at any
time during the previous year and furnishes a declaration to that effect along
with his Permanent Account Number, to the person paying or crediting such sum.
No deduction is required to be made from any sum
credited or paid or likely to be credited or paid during the previous year to
the account of acontractor, during the course of the business of plying, hiring
or leasing goods carriages, if the following conditions are fulfilled:-
(i) He owns ten or less goods carriages at any time
during the previous year.
(ii) He is engaged in the business of plying, hiring
or leasing goods carriages;
(iii) He has furnished a declaration to this effect
along with his PAN.
Goods carriage means—
(i) any motor vehicle constructed or adapted for use
solely for the carriage of goods; or
(ii) any motor vehicle not so constructed or
adapted, when used for the carriage of goods. The term “motor vehicle” does not
include vehicles having less than four wheels and with engine capacity not
exceeding 25cc as well as vehicles running on rails or vehicles adapted for use
in a factory or in enclosed premises.
KEY NOTE
(i) If transporter is not owning
more than 10 goods carriage at any time during the previous year, then payers
(Tax deductors) have to obtain a declaration from transporter along with his
copy of PAN before credit or payment to transporter, whichever is earlier.
(ii) If the transporter is owning
more than 10 goods carriage at any time during the year, then payers are
liable to deduct TDS at the time of paying charges to goods transporter at the
rate of 1% or 2%, as the case may be; based on the transport contractor’s
status which can be identified from the 4th alphabet of the PAN.
No TDS on transportation of gas
if it is carried out in furtherance of contract for sale of gas [Circular No.
9/2012, dated 17.10.2012]
In case the Owner/Seller of the natural gas sells as
well as transports the gas to the purchaser till the point of delivery, where
the ownership of gas to the purchaser is simultaneously transferred, the manner
of raising the sale bill (whether the transportation charges are embedded in
the cost of gas or shown separately) does not alter the basic nature of such
contract which remains essentially a ‘contract for sale’ and not a ‘works
contract’ as envisaged in section 194C. Therefore, in such circumstances, the
provisions of Chapter XVIIB are not applicable on the component of Gas
Transportation Charges paid by the purchaser to the Owner/ Seller of the gas.
Further, the use of different modes of transportation of gas by Owner/Seller
will not alter the position.
However, transportation charges paid to a third
party transporter of gas, either by the Owner/Seller of the gas or purchaser of
the gas or any other person, shall continue to be governed by the appropriate
provisions of the Act and tax shall be deductible at source on such payment to
the third party at the applicable rates.
Payment or aggregate of payments
up to Rs. 35,000 in a day can be made to a transport operator without
attracting disallowance under section 40A(3)
Section 40A(3) provides for disallowance of
expenditure incurred in respect of which payment or aggregate of payments made
to a person in a day exceeds Rs. 10,000, and such payment or payments are made
otherwise than by account payee cheque or account payee bank draft or use of
electronic system through bank account. However, in case of payment made to
transport operators for plying, hiring or leasing goods carriages, the
disallowance will be attracted only if the payments made to a person in a day
exceeds Rs. 35,000. Therefore, payment or aggregate of payments up to Rs.
35,000 in a day can be made to a transport operator otherwise than by way of
account payee cheque or account payee bank draft or use of electronic system
through bank account, without attracting disallowance under section 40A(3).
Person responsible shall furnish
such particulars [Section 194C(7)]
The person responsible for paying or crediting any
sum to the person referred to in Section 194C(6) shall furnish, to the
prescribed income-tax authority or the person authorised by it, such
particulars, in such form and within such time as may be prescribed.
DECLARATION UNDER SECTION 194C(6) OF THE INCOME TAX
ACT, 1961
No. ....................... (To be provided by
payee) Date :
.............................
From: (Name and address of the payee)
.....................................................................
.....................................................................
To : (Name and address of the payer)
.....................................................................
.....................................................................
The freight/transport charges amounting to Rs.
....................................... for transportation of goods by goods
carriages having registration Number ................................. may be paid
or credited to my account without deducting of tax under section 194C of the
Income Tax Act, 1961.
I/We
...................................................................................................
in the capacity of individual/ proprietor hereby declare that I/We do not own
more than ten goods carriage and also did not own more than ten goods carriages
at any time during the period 1st April, 2015 to 31st March, 2016.
My Permanent Account Number (PAN) is
.................................................. . I hereby enclose a
self-attested photo-copy of my PAN Card.
Place : ...................... (Signature of person making declaration)
Meaning of work as defined in
section 194C [Explanation to Section 194C]
The expression “Work” shall include—
(a) advertising;
(b) broadcasting and telecasting, including
production of programmes for such broadcasting or telecasting;
(c) carriage of goods or passengers by any mode of
transport other than by railways;
(d) catering;
(e) with effect from 01.10.2009, manufacturing or
supplying a product according to the requirement or specification of a customer
by using material purchased from such customer,
but does not include manufacturing or supplying a
product according to the requirement or specification of a customer by using
material purchased from a person , other than such customer.
KEY NOTE
Supplying of labour for carrying
out any work but excludes Contracts for rendering of professional services by
lawyers, Doctors, Engineers, Chartered Accountants, Architects, Consultants,
etc., as these are covered under section 194J.
Meaning of Advertisement Contract
– Scope of an advertising contract for the purpose of section 194C of the Act
The term ‘advertising’ has not been defined in the
Act. During the course of the consideration of the Finance Bill, 1995, the
Finance Minister clarified on the floor of the House that the amended
provisions of TDS would apply when a client makes payment to an advertising
agency and not when advertising agency makes payment to the media, which
includes both print and electronic media. It was further clarified that when an
advertising agency makes payment to their models, artists, photographs, etc.,
the tax shall be deducted at the rate of 5% as applicable to fees for professional
& technical services under section 194J.
With effect from 01.10.2009, there is no separate
rate for advertisement contract. The tax is required to be deducted as on other
contract @1% where payee is individual or HUF and @2% in other cases.
When a client makes payment to an
Advertising agency, TDS is applicable
·
If
an Advertising agency gives a Consolidated bill (including charges for art work
and other related jobs as well as payment to media), tax to be deducted.
·
Payments
made for Production of programmes for the purpose of broadcasting/telecasting,
TDS applicable.
·
Payments
in the nature of advertising made directly to Doordarshan may not be subjected
to TDS, as DD being a Government agency, not liable to income-tax.
·
The
agreement of sponsorship of debates, seminars & other functions in
schools/colleges/associations is in the nature of advertising and section 194C
would apply.
·
TDS
is applicable on the payments towards cost of advertisements in the souvenirs
brought out by various organizations.
·
The
Contract for putting up a Hoarding is in the nature of advertisement. Hence
section 194C would be applicable. However, if a person has taken a particular
space on rent and thereafter sublets the same fully or partly for putting up a
Hoarding, the person would be liable under section 194-I.
Payment by an Advertising agency
to Print/electronic media is not subjected to TDS
[Circular No.717, dated
14.08.1995]
As per Circular No. 717, dated 14.08.1995 -
Enlarging the scope of provision regarding deduction of tax at source from
payments to contractors and subcontractors
47.1 Sub-section (1) of section 194C provides for
deduction of income-tax at source from any sum payable for carrying out any
work in pursuance of a contract between the contractor and the Government,
local authorities, statutory corporations, companies, co-operative societies,
statutory authorities engaged in provision of housing accommodation, etc.,
registered societies, trusts and universities. There is no requirement for
deduction of income-tax at source where the contract is between a contractor
and a firm. The payments under such contracts also need to be subjected to the
requirement of deduction of income-tax at source. The Act, therefore, amends
section 194C, in order to apply its provisions to the payments made in
pursuance of a contract between a contractor and any firm.
47.2 In order to subject payments in respect of
advertising contracts, broadcasting contracts, telecasting contracts, transport
contracts and catering contracts to the requirement of deduction of income-tax
at source, the Act amends section 194C by providing that the expression “work”,
used therein, shall also include : (a) advertising, (b) broadcasting and
telecasting including production of programmes for such broadcasting or
telecasting, (c) carriage of goods and passengers by any mode of transport
other than by railways, and (d) catering. While the deduction of tax shall be
at the rate of two per cent. of the amount in regard to items (b), (c) and (d)
above, it shall be at the rate of one per cent. in the case of an advertising
contract. The deduction in regard to item at (a) above shall apply when a
client (i.e., an advertiser) makes payment to an advertising agent. When an
advertising agency makes payments to their models, artists, photographers,
etc., tax shall be deducted by it under section 194J of the Income-tax Act at
the rate of Ten per cent. as applicable to fees for professional and technical
services. There will, however, be no tax deduction at source when an
advertising agent makes payment to the print or electronic media.
Rate of TDS under section 194C
Rates of tax deduction at source from payment or
credit to a resident contractor/sub-contractor are as under:—
|
Payment
To |
PAN
furnished |
Rate
of TDS if recipient does not furnish his PAN to the deductor (with effect
from 01.04.2010) |
|
Payment/credit
to an Individual or Hindu Undivided Family (HUF) |
1%
|
20%
|
|
Payment/credit
to any person other than an Individual or Hindu Undivided Family (HUF) |
2%
|
20%
|
|
Transporters
(Less than 10 Vehicles) |
NIL
|
20%
|
|
Transporters
(More than 10 Vehicles) |
1%
or 2% according to recipient status as above |
20%
|
KEY NOTE
Surcharge or Health &
Education Cess is not applicable. Hence, TDS shall be deductible at basic
rates.
Deduction of TDS in case of
composite contract
(i) WHERE MATERIALS ARE SUPPLIED BY THE GOVERNMENT The
question is whether deduction will be made with reference to gross payment to
the contractor or the net payment, i.e., gross payment minus deductions, if
any.
(ii) On account of materials supplied by the
government, will have to be decided in the light of the terms of the particular
contract and the conduct of parties thereto.
(iii) WHERE THE CONTRACTOR HAS UNDERTAKEN TO CONSTRUCT
A BUILDING OR A DAM, and the government or other specified person has
undertaken to supply all or any of the materials necessary for the work at the
stipulated prices, the deduction will be related to the gross payment without
excluding any adjustments on account of the cost of materials.
(iv) WHERE THE CONTRACTOR HAS UNDERTAKEN ONLY TO PROVIDE
THE LABOUR FOR THE WORK, the ownership of the materials supplied remaining at
all times with the government or another specified person, the sum payable to
the contractor in respect of the contract will only be the amount paid for such
labour or services and will, thus, not include the price of the materials supplied
by the government or other specified persons.
Thus, the rate of TDS from payments made by the
government or other specified persons to any contractor will be 2% or 1% of the
gross payment or, as the case may be, the net payment, depending on the terms
of the contract.
Deduction, when the party
supplies materials to the contractor
When materials are supplied no deduction is
possible. Consequently, no TDS is required to be made. However, when payment is
made either in cash or in kind to contractor/sub-contractor, tax is required to
be deducted.
Time of deduction
Tax has to be deducted at the time of payment of
such sum or at the time of credit of such sum to the account of the contractor,
whichever is earlier. Where any such sum is credited to any account in the
books of account of the person liable to pay such income, such crediting is
deemed to be credit of such income to the account of the payee and the tax has
to be deducted at source. The account to which such sum is credited may be
called “Suspense account” or by any other name.
However, relief has been provided in respect of
payments made by individuals/ HUFs to a contractor exclusively for personal
purposes.
Time limit within which tax is to
be deposited [Rule 30]
The time limit prescribed by rule 30 is as under:—
|
S.
No. |
Particulars |
Due
date for payment |
|
1 |
Where
the payment is made by or on behalf of
the Government |
On
the same day(without using any challan form) |
|
2 |
Where
the payment is made by any person other than Government— |
|
|
|
(a)
If the amount is credited or paid in
the month of March |
On
or before 30th day of April |
|
|
(b)
In any other case |
On
or before 7 days from the end of the month in which the deduction is mad |
Where tax is either not to be
deducted or is to be deducted at lower rate [Section 197, Rules 28 and 28AA]
As per section 197, any person to whom the interest
is payable may make an application in Form No. 13 to the Assessing Officer and
obtain such certificate from him, as may be appropriate, authorizing the payer
not to deduct tax or to deduct tax at a lower rate.
Assessee can apply to assessing officer for no TDS
or TDS at lower rate under section 197. According to section 194C, where the
Assessing Officer is satisfied that the total income of contractor or
sub-contractor justifies the deduction of income-tax at any lower rate or no
deduction of income-tax, as the case may be, the Assessing Officer shall, on
application made by the contractor or sub-contractor in this behalf, give to
him such certificate as may be appropriate.
As per section 206AA(4), with effect from
01.04.2010, no certificate under section 197 for deduction of tax at Nil rate
or lower rate shall be granted, unless the application made under that section
contains the Permanent Account Number of the applicant.
Due date of submission of
quarterly TDS returns
Every deductor who has deducted tax at source the
quarterly returns shall be submitted in Form No. 26Q within the time limit as
per table given below:—
STATEMENT OF DEDUCTION OF TAX UNDER SECTION 200(3)
[RULE 31A(2)]
|
For
the quarter ending |
Due
date of submission of quarterly TDS statements (from 01.06.2016) |
|
June
30 |
31st
July of the financial year |
|
September
30 |
31st
October of the financial year |
|
December
31 |
31st
January of the financial year |
|
March
31 |
31st
May of the financial year immediately following the financial year in which
the deduction is made |
Fee for default in furnishing
statements [Section 234E]
If a person fails to deliver or cause to be
delivered a statement within the time prescribed in section 200(3) in respect
of tax deducted at source [on or after 01.07.2012], he shall be liable to pay,
by way of fee a sum of Rs. 200 for every day during which the failure
continues. However, the amount of such fee shall not exceed the amount of tax
which was deductible at source. This fee is mandatory in nature and to be paid
before furnishing of such statement.
Penalty for failure in furnishing
statements or furnishing incorrect information [Section 271H]
If a person fails to deliver or cause to be
delivered a statement within the time prescribed in section 200(3) or furnishes
an incorrect statement, in respect of tax deducted at source [on or after
01.07.2012], he shall be liable to pay, by way of penalty a sum which shall not
be less than Rs. 10,000/- but which may extend to Rs. 1,00,000/-.
However, the penalty shall not be levied if the
person proves that after paying TDS with the fee and interest, if any, to the
credit of Central Government, he had delivered such statement before the expiry
of one year from the time prescribed for delivering the statement.
Time limit for issue of TDS
certificate
Time limit for issue of TDS certificate shall be
issued in Form No. 16A within 15 days from the due date of furnishing quarterly
TDS return.
|
For
the quarter ending |
TDS
certificate should be given on or before |
|
June
30 |
15th
August of the financial year |
|
September
30 |
15th
November of the financial year |
|
December
31 |
15th
February of the financial year |
|
March
31 |
15th
June of the financial year immediately following the financial year in which
the deduction is made |
The certificate should be downloaded from http://contents.tdscpc.gov.in
Penalty for non-issuance of TDS
Certificates [Section 272A(2)(g)]
If the deductor is not able to provide the
certificate within due date, then a penalty of Rs. 100 per day of delay per
certificate has to be paid. Remember that penalty cannot exceed the TDS amount
deducted for the quarter.
Payments towards up-linking,
bandwith and broadcasting charges subject to TDS under section 194C
Payments towards up-linking, bandwith and
broadcasting charges subject to TDS under section 194C Payments on account of
up-linking charges and broadcasting charges is purely contractual in nature and
does not amount to providing technical services. The Calcutta High Court held
that payments made to multi-system operators on account of uplinking charges
& down-linking charges, bandwidth and air-time charges is purely
contractual in nature and does not amount to providing technical services,
accordingly withholding tax under section 194C and not under section 194J of
the Income-tax Act, 1961 should be applicable.—[CIT(TDS)v. Media World Wide
(P)Ltd. - Date of Judgement : 08.01.2020 (Cal)]
Refining crude oil and selling
petroleum products – Agreement with another company for transportation of goods
- Works contract – Rent - Liable to deduct tax at source under section 194C and
not 194-I
Oil and selling petroleum products – Agreement with
another company for transportation of goods- Works contract—Rent – Liable to
deduct tax at source under section 194C and not 194-I. Court also observed that
even after the amendment to the Explanation under section 194-I, the
case could not fall within its scope as it was a case of a contract for
transport of goods and, therefore, a contract of work within the meaning of
section 194C and not one which fell within the Explanation to section
194-I, namely, use of plant by the assessee.— [State Bank of India v. ACIT
(2019) 197 TTJ 989 : 174 ITD 551 (ITAT Jaipur)]
Tax was deductible from payment
of outsourcing expenses such as processing charges, call centre operations and
business services etc. under section 194C instead of section 194J of the Act
Assessee had hired the services for various works
such as storage of data, scanning of documents, processing charges, call centre
operations etc. Looking to the nature of services outsourced, it was held that
the same were basically clerical services of repetative nature of work and
payments were therefore, neither for managerial nor for technical services.
Having perused the documents on record and looking to the nature of services described,
we do not find that the Tribunal has committed any error. The work outsourced
was in the nature of clerical work and TDS was rightly deducted under section 194C.—[CIT
v. M/s. Reliance Life Insurance Co. Ltd. - Date of Judgement : 10.06.2019 (Bom)]
Contractors – Licence fee paid to
contractor by contractee and not vice versa – Not liable to deduct tax
at source
Dismissing the appeal of the revenue the Court held
that since payment of licence fee was made by contractee to contractor,
provision of Section194C is not applicable.—[PCIT v. Hakmichand D & Sons
(2018) 258 Taxman 208 (Guj)]
TDS was not to be deducted under
section 194C while making payment of licence fee by the assessee to IRCTC for
granting contract of catering service
The Apex Court dismissed the SLP filed by Revenue
against the High Court’s order wherein the High Court had held that TDS was not
to be deducted under section 194C while making payment of licence fee by the
assessee to IRCTC for granting contract of catering service since the payment
of licence fee was made by the assessee-contractee to the contractor (IRCTC)
whereas the said section is attracted where the payment is made by contractor
to contractee.—[PCIT v Hakmichand D & Sons (2018) 97 taxmann.com 584
(SC)]
Contractors – Payment towards
annual maintenance contracts for lifts and air conditioners is not technical
services – Deduction of tax as contractor is justified payment cannot be
treated as fees for technical services
Dismissing the appeal of the revenue, the Court held
that the Tribunal had correctly held that the assessee had made payments only
in respect of maintenance contracts which related to minor repairs, replacement
of some spare parts, greasing of machinery, etc., which services did not
require any technical expertise, and therefore, could not be categorised as
“technical services” as contemplated under section 194J and that the assessee
had correctly deducted the tax at source under section 194C which applied to
payments made to contractors. No question of law arose. (Related Assessment
years : 2000-01 to 2009-10)—[CIT v. Mumbai Metropolitan Regional Development
Authority (2018) 408 ITR 111 : 304 CTR 776 : 258 Taxman 164 : 170 DTR 97 (Bom)]
KEY NOTE :
SLP of revenue is dismissed due
to low tax effect, CIT v. Mumbai Metropolitan Regional Development Authority
(2019) 262 Taxman 451 (SC)
Annual Maintenance Contract in
respect of various specialised hospital equipments – Not be in nature of fees
for technical services – Deduction of tax at source as contractor- Held to be
proper
Dismissing the appeal of the revenue, the Court held
that Annual Maintenance Contract in respect of various specialised hospital
equipments is not to be in nature of fees for technical services hence
deduction of tax at source as contractor is held to be proper. [Followed CIT
v. Grant Medical Foundation (2015) 375 ITR 49 (Bom)]—[CIT v. Asian Heart
Institute and Research Centre (P) Ltd. (2019) 262 Taxman 395 (Bom.)]
Casual workers – Labour payment
to one or two persons on site for disbursing same among labourers – In absence
of any contract to carry out any work with a specified person there is no
liability to deduct tax at source
Dismissing the appeal of the revenue, the Court held
that the assessee handed over labour payment to one or two persons on site for
disbursing same among labourers. There was no contract between assessee and any
specified person for carrying out any work. In absence of any contract to carry
out any work with a specified person, provisions of Section 194C would not be
attracted and, hence, there would be no liability to deduct tax at source. (Related
Assessment year : 2007-08)—[PCIT v. Swastik Construction (2018) 254 Taxman
163 (Guj)]
Supplier transported goods to
assessee through their own transport agency—There was no contract between
assessee and transporter—Not liable to deduct tax at source
Allowing the appeal of the assessee, the Tribunal
held that ; when supplier transported goods to assessee through their own
transport agency, there was no contract between assessee and transporter.
Accordingly, the assessee is not liable to deduct tax at source. (Related
Assessment year : 2006-07)—[K.V. Satyanarayana Murthy v. ITO (2018) 172 ITD
7 (ITAT Visakha)]
Hire charges paid to truck owners
fall within the purview of section 194C however labour charges paid to a person
who is engaged for labour work on a daily wages basis does not attract
provisions of section 194C
Payment made to truck owners for hire charges would
attract provisions of section 194C. Labour charges paid to a person who was
engaged for the labour work on daily wages as and when his services were
required and hence tax under section 194C was not required to be deducted on
the same (Related Assessment year 2007-08)—[Silver Salt Industries v. ITO
(2017) 58 ITR 46 (ITAT Rajkot)]
Even if aggregate payment made in
a year to parties which did not exceed Rs.50,000, but onetime payment exceeded
Rs.20,000, is required to be deducted TDS on it
Assessee dealer made one time payments to parties as
advertisement and publicity expenses which exceeded Rs.20,000. Assessee claimed
that such aggregate payment did not exceed Rs.50,000, therefore, no TDS was to
be deducted. Tribunal held that even if aggregate payment did not exceed Rs.50,000
in a year, but the onetime payment exceeded Rs.20,000, then assessee would be
liable to deduct TDS. (Related Assessment year : 2009-10)—[Shimla Automobiles
(P) Ltd. v. ITO (2017) 187 TTJ 206 : 164 ITD 9 : 154 DTR 305 (ITAT Chandigarh)]
It was held that payments on account of channel
carriage fees, up-linking charges, and Bandwidth charges are not in the nature
of payment towards Technical Fees under section 194J, but the same are
contractual in nature, for which 2% of TDS is applicable under section 194C of
the Income Tax Act. (Related Assessment Year: 2011-12)—[ITO v. Media
Worldwide (P) Ltd. – Date of Judgement : 12.05.2017 (ITAT Kolkata)]
Assessee deducted TDS under wrong
provision in earlier assessment years which was accepted by revenue without
verification, principle of consistency could not be applied to continue
application of such wrong provision in later years
The assessee was engaged in business of distribution
of TV channels from its own DTH network. It obtained rights from TV channels to
distribute their programmes to the ultimate viewers. It made payments thereto
after deducting TDS u/s.194C. The Assessing Officer held that assessee paid
licence fee to TV channels which was in the nature of royalty covered under Explanation
2(v) of section 9(1)(vi) and as such, TDS was to be deducted under section
194J. Applicability of correct TDS provision was in question. Assessee argued
that it made payments in past also after deducting TDS under section 194C,
which view had not been disturbed by revenue therefore same view should be followed
for assessment year in question as well. Issue was not examined in earlier
years and assessee’s contention was accepted without verification. Non-examination
of issue in earlier years could not give licence to assessee to claim in later years
that correctly applicable section be put under carpet and, therefore, a wrong
provision could not be applied in garb of consistency. (Related Assessment year
: 2009-10)—[Dish TV India Ltd. v. ACIT (2016) 157 ITD 1096 (ITAT Delhi)]
Broadband charges could not be
deemed as technical services; not liable to deduct tax at source under section
194J - Deduction of tax at source under section 194C was correctly done by
assessee
Where assessee, a Customs House Agent, made payment
to Central Warehousing Corporation, Container Freight Station, Bombay Port
Trust and Airport Authority of India for services rendered by such entities
which included use of space for storage of imported/exported materials, said
payment could not be construed as ‘rent’ for purposes of section 194-I.
Where assessee paid survey fees to persons or
agencies for inspection of goods which was required to be done while
importing/exporting goods, said payment was not in nature of fees for
professional or technical services attracting provisions of section 194J
Where assessee made payment towards internet charges
to concerns providing broadband facilities, internet services provided by
broadband service provider could not be construed as technical service so as to
require assessee to deduct tax at source under section 194J.
Where assessee made payment to contractor towards
hiring of Forklift/ Cranes and in this context pleaded that said payment had
been made to contractor for providing services of handling of goods and
transportation of cargo and it was contractor who had in turn hired
Cranes/Forklift for his use, such payment was subject to deduction of tax at
source under section 194C Where assessee made payment towards fumigation
charges and deducted tax at source under section 194C, since persons entrusted
with job of fumigation carry out spraying of chemicals, etc. to prevent attack
of pests so that cargo/ goods being handled by assessee did not get damaged,
deduction of tax at source under section 194C was correctly done by assessee.—[(2016)
76 taxmann.com 289 (ITAT Mumbai)]
Deduction at Source under section
194C – Printing Material—Payments to contractor
Payment made for purchase of printed packing
material to suppliers, no work involving skill or secrecy, it being sale,
section 194C is not attracted.— [ITO v. Mother Dairy Food Processing Ltd.
(2011) 7 ITR 16 (ITAT Delhi)]
Catering does not include Serving
food in Restaurant
Catering does not include serving food in restaurant
in the normal course of running of restaurant/café, hence TDS is not applicable
on serving food in restaurant.—[CBDT’s Circular No.715, dated 08.08.1995]
