Section 194C provides for deduction of Tax at source on payment made for contract.
In day to day business activities we get work done from other persons.
If we employ them then they are considered as our employee and TDS will be deducted U/s 192 ‘ TDS on Salary‘.
In other case, if we do not employ them, it is a case of contract.
The term contract has given inclusive definition under section 194C.
It means the word ‘contract’ will include the following activities specifically.
- Broadcasting and telecasting
- Transportation of Goods and passengers except by railways.
- Manufacturing or supply of any product according to the requirement or specification of the customer by using the material purchased form the customer. It will not apply if material is purchased from other than customer it will be case of sale.
Please note that above list is in addition to the normal meaning given by the section 194C to the word ‘Contract’.
When section 194C is applicable?
When any person responsible for paying any sum to a resident contractor for carrying out any work in connection with a contract, including sub contract, shall deduct tax at source under this section.
The tax deduction at source under this section shall be made either at the time of payment or credit whichever is earlier.
Who needs to deduct TDS under section 194C?
For the purpose of this section , the payer may be;
- Central gov. or any state gov.
- Local authority
- Central/state provincial corporation
- Cooperative societies
- Housing board
- Any foreign government or a foreign enterprise or any association or body established outside India
Exception for Individual and HUF
After reading above, are you worrying that next time you will have to deduct TDS for your personal contract payments like payment for interior designing contract of your home etc.
You need not to worry.
There are some exceptions for Individuals and HUF.
- Where the payer is an individual, HUF, AOP or BOI, the provisions of section 194c are not applicable where the total sales, gross receipts or turnover of such individual, HUF, AOP or BOI form the business or profession carried on by them does not exceeds the monetary limits specified u/s 44AB( Rs. 1 crore in case of business and Rs. 25 lakh in case of profession) during th financial year in which sum is credited or paid- As per explanation to section 194C(7).
- Where any sum paid or credited to the account of the contractor by an individual or HUF, and such sum is incurred exclusively for personal purposes of such individual or any member of HUF, tax need not be deducted at source-Sec 194C(4).
What is the rate of TDS under section 194c?
|Nature of Payee||Rate of Taxes|
|In case of Payee is an individual or HUF||1% of the contract value|
|Other than individual and HUF||2% of the contract value|
Where the payee has not furnished PAN, tax @20% shall be deducted.
What is the limit for TDS under section 194C?
The payer is responsible to deduct tax at source where:
- The amount of any single sum credited or paid to the contractor exceeds Rs. 30,000; or
- The aggregate amount of such sums credited or paid or likely to be credited or paid to the contractor during the financial year exceeds Rs. 75,000.
Limit of deduction TDS ON CONTRACT 194C
- The amount of any single sum credited or paid to contracter exceeds Rs 30,000
- The aggregate amount of such sums credited or paid to the contractor during the financial year exceeds Rs 75,000.
Check here for the full Section on TDS on Contract u/s 194C.