The Income Tax Act 2019-20 is a comprehensive legislation that governs taxation in India. One of the key provisions of this Act is Section 194C, which pertains to tax deduction at source (TDS) on payments made to contractors and sub-contractors. In this blog, we will discuss the implications of Section 194C and the applicable TDS rates.
What is Section 194C of the Income Tax Act 2019-20?
Section 194C of the Income Tax Act 2019-20 mandates that any person making payment to a contractor or sub-contractor for carrying out any work (including supply of labour for carrying out any work) shall deduct TDS at the time of payment. The section applies to all types of contractors, including government contractors and foreign contractors.
The threshold limit for applicability of TDS under Section 194C is Rs. 30,000 per payment or Rs. 1,00,000 in aggregate during the financial year. If the payment is made to an individual or a Hindu Undivided Family (HUF), the threshold limit is Rs. 75,000 per payment or Rs. 1,00,000 in aggregate during the financial year.
What are the TDS rates applicable under Section 194C?
The TDS rate under Section 194C varies depending on the nature of the contract. The following are the TDS rates applicable under Section 194C:
- If the contractor is an individual or an HUF and the payment is for carrying out any work (including supply of labour for carrying out any work), the TDS rate is 1%.
- If the contractor is a person other than an individual or an HUF and the payment is for carrying out any work (including supply of labour for carrying out any work), the TDS rate is 2%.
- If the payment is for the use of any plant or machinery (including transportation vehicles) and the contractor is an individual or an HUF, the TDS rate is 1%.
- If the payment is for the use of any plant or machinery (including transportation vehicles) and the contractor is a person other than an individual or an HUF, the TDS rate is 2%.
It is important to note that if the contractor does not provide their PAN (Permanent Account Number), the TDS rate under Section 194C shall be 20%.
What are the implications of non-compliance with Section 194C?
Failure to comply with Section 194C can result in penalties and interest. The penalty for non-compliance can range from Rs. 10,000 to Rs. 1,00,000, depending on the duration of the non-compliance. Additionally, interest is levied on the amount of TDS not deducted or deducted but not remitted to the government.
Conclusion
Section 194C of the Income Tax Act 2019-20 is an important provision that governs TDS on payments made to contractors and sub-contractors. It is essential for taxpayers to understand the implications of this section and ensure compliance with the applicable TDS rates. Non-compliance can result in penalties and interest, which can be avoided through proper adherence to the provisions of the Act.
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Frequently Asked Questions (FAQs)
Q. What is Section 194C of the Income Tax Act 2019-20?
Section 194C is a provision in the Income Tax Act 2019-20 that mandates tax deduction at source (TDS) on payments made to contractors and sub-contractors for carrying out any work.
Q. Who is responsible for deducting TDS under Section 194C?
Any person making payment to a contractor or sub-contractor for carrying out any work is responsible for deducting TDS under Section 194C.
Q. What is the threshold limit for TDS under Section 194C?
The threshold limit for TDS under Section 194C is Rs. 30,000 per payment or Rs. 1,00,000 in aggregate during the financial year. However, for payments made to an individual or a Hindu Undivided Family (HUF), the threshold limit is Rs. 75,000 per payment or Rs. 1,00,000 in aggregate during the financial year.
Q. What are the TDS rates applicable under Section 194C?
The TDS rates applicable under Section 194C vary depending on the nature of the contract. For an individual or HUF contractor, the TDS rate is 1% while for other contractors it is 2%. The TDS rate for payments made for use of any plant or machinery (including transportation vehicles) is also 1% or 2% depending on the nature of the contractor.
Q. Is it mandatory for contractors to provide their PAN for TDS under Section 194C?
Yes, it is mandatory for contractors to provide their Permanent Account Number (PAN) for TDS under Section 194C. If the contractor does not provide their PAN, the TDS rate shall be 20%.
Q. What are the implications of non-compliance with Section 194C?
Non-compliance with Section 194C can result in penalties and interest. The penalty for non-compliance can range from Rs. 10,000 to Rs. 1,00,000, depending on the duration of the non-compliance. Additionally, interest is levied on the amount of TDS not deducted or deducted but not remitted to the government.
Q. Is there any exemption from TDS under Section 194C?
Yes, there are certain exemptions from TDS under Section 194C. For example, TDS is not required to be deducted on payments made to a transporter for the transportation of goods. However, such payments are subject to TDS under Section 194I if the transporter owns more than 10 goods carriage at any time during the financial year.
Q. Are foreign contractors also covered under Section 194C?
Yes, foreign contractors are also covered under Section 194C if they receive payment for carrying out any work in India.
Q. Can TDS under Section 194C be adjusted against tax liability?
Yes, TDS deducted under Section 194C can be adjusted against tax liability while filing income tax returns.
Q. Is it possible to claim a refund for excess TDS deducted under Section 194C?
Yes, it is possible to claim a refund for excess TDS deducted under Section 194C while filing income tax returns.
