Section 194C of the Income Tax Act is tax deducted at source (TDS), that is, from payments you receive if you fall under the “contractors” or “subcontractors” category. So, the entity paying you must deduct tax at the time of making the payment.
Here are the following types of entities responsible for deducting taxes from payments towards contractors and subcontractors:
· A company
· A firm
· A trust
· Central or State government
· A university
· A corporation
· Co-operative societies
· Registered societies
· A government-mandated authority dealing with housing needs and infrastructure development
Who is a contractor or sub-contractor under this act?
A contractor is defined as any person who signs an agreement with the entities mentioned above for any type of work:
· A corporation
· State or Central government
· A company
· A co-operative society
· Any local authority
A subcontractor is a person who becomes party to a contract for:
· Carrying out the entire or part of the work that the contractor has undertaken
· Providing manpower for work undertaken by the contractor
What type of work is under the purview of Section 194C?
· Manufacturing/supplying customised goods
· Broadcasting and telecasting
· Transportation of goods or passengers-related work (except rail transport)
When is TDS applicable?
TDS is applicable to work and labour contracts:
· If the contractor is a resident of India
· If the one-time payment is more than Rs 30,000
· If the total payment to a contractor exceeds Rs 75,000 during a financial year
When is TDS not applicable?
Section 194C is not applicable:
· If the payer’s business turnover was less than Rs 1 crore in the previous year
· If the payer’s professional turnover was less than Rs 25 lakh in the previous financial year
· A Hindu Undivided Family (HUF) or an individual will not deduct TDS if the payment made falls under the category of personal expenses
· When the supply of materials is done by the payee, then TDS is not applicable
What is the rate of TDS?
If PAN card is available, then –
· 1% TDS from any payment to HUFs and resident Indians
· 2% TDS from payments made to parties other than resident Indians or HUFs
· No deductions from payments made to transporters
In the absence of PAN –
· 20% TDS from payments made to all contractors and subcontractors, including transporters
Time limit for depositing tax
· If the government agency makes a payment, then the tax must be deposited on the day of the payment
· If it is a non-governmental entity, then the tax should be deposited within seven days of the following month if payment is made between April and February. If the payment is made in the month of March, then the tax needs to be deposited before April 30.
How is the TDS certificate issued?
TDS certificates are issued every financial quarter via Form 16A. It is mandatory for all TDS deductors to generate a TDS certificate from the TIN central system. Either digital signature or manual signature can be used to authenticate the TDS certificate.