Everything You Need to Know About Section 194c in TDS
Section 194c of the Income Tax Act, 1961, deals with the tax deducted at source (TDS) that must be deducted whenever payments are made to resident contractors or subcontractors. In other words, if you are paying a contractor for some work according to a contract, then deducting TDS is mandatory.
The list of organizations that should deduct TDS includes:
- State government/central government
- Cooperative societies
- Registered societies
- Local authorities
Who is a Contractor?
A contractor is an individual who enters into a contract with a local authority or corporation to carry out work. Similarly, a subcontractor is someone who enters into a contract with the contractor. It can be used for:
- Manpower for all or part of the work
- Carrying out some or all of the contract work
What is “Work” as Per Section 194c?
Section 194c TDS defines “work” as the following:
• Telecasting, broadcasting
• Carriage of passengers and goods in modes of transport (excluding railways)
• Manufacturing products as per customer requirements
Who is a Subcontractor?
As per Section 194c, a subcontractor is an individual who falls into these categories:
• Carries out a portion or entirety of work under an agreement.
• Agrees upon the completion of any work.
• Completes labor under a contract with conditions agreed upon with the agencies we have above.
When Should Section 194c Be Deducted?
The individual who makes the payment to the contractor or subcontractor should deduct TDS under the following circumstances:
• At the time of payment (in cash)
• Any mode of payment that is faster
• during the time of crediting the payment to the account
Rates of TDS as per Section 194c
- Credit or payments to the resident individual: If PAN is available, the TDS rate is 1%. If PAN is not available, the TDS rate is 20%.
- Credit or payment to a resident person other than an individual: If PAN is available, TDS is 2%. If PAN is not available, the TDS rate is 20%.
- Credit or payment to transporters: If PAN is available, TDS is nil. If PAN is not available, it is 20%.
Conditions & Payments: Your Guide to Section 194c
In this section, we will talk about the conditions for deductions. In addition, we will account for payments made to the subcontractor.
• The subcontractor should be a resident following Section 6 of the Income Tax Act.
• Payments are made to the subcontractor.
• A resident contractor is the one who receives payment. They should not be HUF or individuals.
• The consideration amount of the contract under which the payment is made should not be less than Rs. 30,000.
• The contractor should credit or pay the amount.
What are the Exceptions to Section 194c?
- In a single contract, the total amount paid to the contractor cannot be more than Rs. 30,000.
- The total amount credited to the contractor involves both employment and hiring. In this case, the contractor does not possess more than 10 goods from the year before.
- The contractor must provide the declaration along with the PAN to the deductor.
- The sum paid to the contractor is for carrying out tasks for personal use.
- The total payment made in the financial year does not exceed Rs. 1,00,000.
Here are additional exceptions you must take note of.
• If the government supplies raw materials for the project.
• If the contractor is in an agreement to build a building or dam.
• If the contractor offers labour to carry out the task.
If the particular party offers to supply raw materials to the contractor, then there is no deduction.
When Should You Deposit TDS Under Section 194c?
As per Section 194c, the TDS should be deposited the same day the payment is made. This is if the payment is made by the government. But if the payment is done by someone else, this is what you should do.
• If the payment is made in March, it should be deposited before April 30th.
• If the payment is made in any other month, it should be deposited before the 7th of the following month.
For example, if a company pays TDS for July, the TDS due date is the 7th of August.
The Bottom Line
Now that you are aware of Section 194c TDS, filing returns will be simpler. Make certain you understand the terms and conditions. With this, you can also claim tax-related benefits. We hope you find this guide on Section 194c helpful. Visit Piramal Finance to learn more about filing returns and for deeper insights into finance-related topics. Piramal Finance is an online platform that allows you to learn everything you need to know about relevant developments in the world of finance. For more such information on financial matters or about personal loans, credit cards, and financial management, check out more blogs on their website!
Also Read: What is GSTIN? Everything You Need to Know