Section 194C of the Income Tax Act: TDS on Payments to Contractors, Sub-Contractors, and Transporters

Section 194C of the Income Tax Act: An Overview

Section 194C of the Income Tax Act deals with tax deducted at source (TDS) on payments made to contractors and sub-contractors. This section specifies the rate at which TDS is to be deducted, the threshold limit for applicability of TDS, and other relevant provisions.

Applicability of Section 194C

Section 194C applies to payments made by a person (other than an individual or a Hindu Undivided Family) to a resident contractor or sub-contractor for carrying out any work (including supply of labor for carrying out any work). The threshold limit for applicability of TDS under this section is INR 30,000 in a single payment or INR 1,00,000 in aggregate during the financial year.

TDS Rates under Section 194C

The TDS rates under Section 194C are as follows:

1. For payments made to an individual or a Hindu Undivided Family (HUF) contractor, the TDS rate is 1%.
2. For payments made to any other contractor, the TDS rate is 2%.

However, if the contractor has furnished his or her Permanent Account Number (PAN) to the person making the payment, the TDS rate will be reduced to 0.75% in case of individual or HUF contractor and 1.5% in case of any other contractor.

Provisions related to sub-contractors

If the contractor engages a sub-contractor for carrying out any part of the work assigned to him or her, the provisions of Section 194C will also apply to payments made to the sub-contractor. In such a case, the contractor will be responsible for deducting TDS on payments made to the sub-contractor.

However, if the sub-contractor has obtained a certificate from the assessing officer that no TDS is required to be deducted on his or her income, the contractor will not be required to deduct TDS on payments made to the sub-contractor.

Provisions related to Transporters

Section 194C also applies to payments made to transporters for the carriage of goods. However, the threshold limit for TDS under this section is INR 30,000 per single payment or INR 1,00,000 in aggregate during the financial year.

The TDS rate under this section is 1% if the transporter provides his or her PAN to the person making the payment. If the transporter does not provide his or her PAN, the TDS rate will be 2%.

Procedures for TDS Deduction and Payment

Once the applicability of Section 194C is established, the person making the payment must deduct TDS at the applicable rate before making the payment. The TDS amount must be deposited with the government within the due date specified by the Income Tax Act.

The due date for depositing TDS with the government is the 7th of the following month in which TDS is deducted. For example, if TDS is deducted on 15th February, the due date for depositing TDS with the government is 7th March.

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The person making the payment must also issue a TDS certificate (Form 16A) to the contractor or sub-contractor within the due date specified by the Income Tax Act. The due date for issuing Form 16A is the 15th day of the month following the quarter in which TDS is deducted.

For example, if TDS is deducted in the quarter ending June, the due date for issuing Form 16A is 15th July. If TDS is deducted in the month of March, the due date for issuing Form 16A is 15th May.

Penalties for Non-Compliance

Non-compliance with the provisions of Section 194C can result in penalties and legal consequences. If the person making the payment fails to deduct TDS or deposits the TDS amount after the due date, he or she may be liable to pay interest and penalty under the Income Tax Act.

If the person making the payment fails to issue Form 16A or issues an incorrect Form 16A, he or she may be liable to pay a penalty of INR 100 per day of default under Section 272A(2)(g) of the Income Tax Act.

Conclusion

Section 194C of the Income Tax Act lays down provisions for TDS on payments made to contractors, sub-contractors, and transporters. It is important for businesses to comply with these provisions to avoid any penalties or legal consequences. Businesses should ensure that they deduct TDS at the appropriate rates and furnish the required TDS returns on time.

Read more useful content:

• section 145 of income tax act
• section 10e of income tax act
• section 9 of the income tax act
• section 94b of income tax act
• section 206aa of income tax act

Frequently Asked Questions (FAQs)

1. Who is liable to deduct TDS under Section 194C of the Income Tax Act?

• Any person other than an individual or a Hindu Undivided Family making payments to a resident contractor or sub-contractor for carrying out any work is liable to deduct TDS.

2. What is the threshold limit for applicability of TDS under Section 194C?

• The threshold limit for TDS under Section 194C is INR 30,000 in a single payment or INR 1,00,000 in aggregate during the financial year.

3. What is the TDS rate under Section 194C for payments made to an individual or a Hindu Undivided Family contractor?

• The TDS rate under Section 194C for payments made to an individual or a Hindu Undivided Family contractor is 1%.

4. What is the TDS rate under Section 194C for payments made to any other contractor?

• The TDS rate under Section 194C for payments made to any other contractor is 2%.

5. Is it mandatory to deduct TDS on payments made to sub-contractors under Section 194C?

• Yes, if the contractor engages a sub-contractor for carrying out any part of the work assigned to him or her, the provisions of Section 194C will also apply to payments made to the sub-contractor.

6. Is there any exemption from TDS on payments made to sub-contractors under Section 194C?

• Yes, if the sub-contractor has obtained a certificate from the assessing officer that no TDS is required to be deducted on his or her income, the contractor will not be required to deduct TDS on payments made to the sub-contractor.

7. Does Section 194C apply to payments made to transporters for the carriage of goods?

• Yes, Section 194C also applies to payments made to transporters for the carriage of goods.

8. What is the TDS rate under Section 194C for payments made to transporters?

• The TDS rate under Section 194C for payments made to transporters is 1% if the transporter provides his or her PAN to the person making the payment.

9. What is the due date for depositing TDS with the government under Section 194C?

• The due date for depositing TDS with the government under Section 194C is the 7th of the following month in which TDS is deducted.

10. What is the penalty for non-compliance with the provisions of Section 194C?

• Non-compliance with the provisions of Section 194C can result in penalties and legal consequences, including interest and penalty for late deposit of TDS, and penalty for failure to issue or incorrect issuance of Form 16A.