Answer: TDS in case of Payments to Contractors Section 194C
1. Every person responsible for making payment to a resident contractor in connection with any work shall deduct tax at source @ 2% and
In case of payment to individual or Hindu Undivided Family, the rate of TDS shall be 1%. Tax shall be deducted at source only if the amount being paid is exceeding Rs.30,000 or the amount paid or payable during a particular financial year to a particular person exceeds Rs.1,00,000.
Example:- Bharat solutions Ltd. makes the following payments to Mr. Pradeep, a contractor, for contract work during the P.Y.2019-20
Rs. 15,000 on 01.05.2019
Rs. 25,000 on 01.08.2019
Rs. 30,000 on 01.12.2019
On 01.03.2020, a payment of Rs. 48,000 is due to Mr. Pradeep on account of contract work.
Now we are going to discuss whether Bharat Solutions Ltd. is liable to deduct tax at source under section 194C from payments made to Mr. Pradeep.
Solution: In this case, the individual contract payments made to Mr. Pradeep does not exceed Rs. 30,000. However, since the aggregate amount paid to Mr. Pradeep during the P.Y.2019-20 exceeds Rs. 1,00,000 (on account of the last payment of Rs.48,000, due on 01.03.2020, taking the total from Rs. 70,000 to Rs. 1,18,000), the TDS provisions under section 194C would get attracted. Tax has to be deducted @ 1% on the entire amount of 1,18,000 from the last payment of Rs. 48,000 and the balance of Rs. 46,820 (i.e. Rs. 48,000 – Rs. 1,180) has to be paid to Mr. X. Example
(i) If DDA has to pay a sum of Rs.5,00,000 to Mr. Pradeep in connection with a particular contract, amount of TDS shall be Rs.5,000.
(ii) If in the above case amount is to be paid to Wipro Ltd. An Indian company, amount of TDS shall be Rs.10,000.
2. An Individual or Hindu Undivided Family shall be required to deduct tax at source only if the turnover of business or profession has exceeded the limit mentioned under section 44AB during the financial year immediately preceding the relevant year.
Example: – If Mr. Inder is engaged in a business and turnover of business is Rs.41,00,000 in the previous year 2018-19 and he has to pay Rs.1,10,000 to Mr. Sunil in the previous year 2019-20 in connection with a contract, amount of TDS shall be Nil
but if his turnover in the previous year 2018-19 was Rs.110,00,000, amount of TDS shall be Rs.1,100
but if payment is to given to Wipro Ltd., amount of TDS shall be Rs.2,200.
3. No individual or HUF shall deduct tax at source under this section, if the amount is paid for personal purpose of such individual or HUF.
Example:- If in the above case, Mr. Inder has to pay Rs.1,10,000 to Mr. Sunil in connection with a contract which is for the personal purpose of Mr. Inder, TDS under section 194C, shall be Nil.
4. Contract for this purpose shall include every type of contract e.g.
- Advertising contract
- Broadcasting and telecasting contract
- Carriage of passenger by any mode of transport
- Catering contract
- Contract for construction
- Contract for courier services
- Contract of maintenance of plant and machinery etc.
5. If any person making payment for purchase of goods, no tax shall be deducted at source
but if such person has supplied raw material etc. and contract is only for labour etc., tax shall be deducted at source e.g.
Wipro Ltd. purchased furniture for Rs.10 lakh and no tax shall be deducted at source
but if Wipro Ltd. has supplied raw material like wood etc. and has paid Rs.2 lakh for labour charges for making the furniture, tax shall be deducted at source.
Example:- Peter England Ltd. has given orders to Mr. Mukesh Tailor to stitch uniform for their employees and Mr. Mukesh Tailor purchased material from the market and has stitched uniform for Peter England Ltd. and has charged Rs.7,00,000, in this case amount of TDS shall be nil
but if material is supplied by Peter England Ltd. and Mr. Mukesh Tailor has charged Rs.1,10,000 as labour charge, tax shall be deducted at source @ 1% i.e. Rs.1,100.
6. No tax shall be deducted at source in case of payment to a contractor in connection with transportation of goods where such contractor do not own more than 10 goods carriages at any time during the year and also submitted a declaration in this regard and has also furnished permanent account number.
Example :- Capsule Corp Ltd. has paid Rs.5,00,000 to Mr. Goku for transportation of goods and Mr. Goku do not have more than 10 goods carriages and he has furnished a declaration in this regard and has submitted permanent account number, in this case no tax shall be deducted at source
but if PAN has not been provided, tax shall be deducted at source @ 20%.