TDS on Contracts (Sec 194C):

When is it Applicable? (Applicability)

·         Any Person who is responsible to pay sum of amount to a Resident Contractor for carrying out any sort of work which is in the nature of Contract,

·         Including payment made by a person (who is a Contractor) to a Sub-Contractor

·         Payment made towards Contract which involves Supply of Labour for Carrying out work is also included for this purpose

·         In case the Contractor is a Transporter who provides PAN, the payer NEED NOT DEDUCT TAX AT SOURCE on freight charges paid to such Transporter.

·         List of Types of Contracts for the purpose of Deducting Tax at Source:

·         Advertising

·         Broadcasting and Telecasting including production of programmes for such broadcasting or telecasting

·         Carriage of Goods and Passenger other than transportation in the mode of Railways

·         Catering

·         Manufacturing or Supplying of a product according to the specifications and requirements of the Customer (Payer) using material purchased from the same customer (Payer)

Who is Responsible to Deduct Tax at Source? (Who is a Payer for the purpose of TDS?)

For the purpose of this section a Payer (Person who makes payment) may be a:

1.       Central Govt. or any State Govt.

2.       Local Authority

3.       Central/ State Provincial Corporation

4.       Company

5.       Cooperative Societies

6.       Housing Board

7.       Trust

8.      University

9.       Any foreign Govt. or a foreign enterprise or any association or body established outside India

10.   Firm (Partnership Firm)

11.    Individual   (Read  “Note” Below)

12.    Body of Individuals (Read “Note” Below)

Note – Exception for Some Individuals, HUFs, AOPs or BOIs is explained below:

·         If the payer (person who makes the payment) is an Individual, HUF, BOI or AOP whose Turnover (Total Sales or Total Receipts) during the previous Financial Year is less than:

·         1,00,00,000 (1 Crore) In case of Business for F.Y. 2013-14  &

·         25, 00,000 (25 Lakhs) In case of Profession for F.Y. 2013-14.

For Example:

·         Assume today is 14/06/2013 which means you are in Fin. Year 2013-2014, Let’s Say the Total Turnover, Sales or Receipts of the Sole Proprietor is 32,00,000 during Financial Year 2012-2013 then you Need not Deduct Tax at Source since your Total Sales is less than 1,00,00,000 during previous year.

·         In case the Individual who is in Profession (Doctors, Lawyers, Chartered Accountants, etc., ) he should deduct TDS because the Total Receipts is 32,00,000 which is more than 25,00,000

TDS to me made only if: (Threshold Limit for Deduction)

1.       If any single sum of amount paid or credited (to be paid) to the contractor exceeds Rs. 30,000/- (or)

2.       The Aggregate amount of such sums credited or paid to the contractor during the Financial Year exceeds Rs 75,000/-

For Example:

Illustration – 1

       If “X” is required to make a payment of Rs. 15,000/- to a Contractor “Y” for the first time during the financial year i.e., the first payment to be made to “Y” since 01/04/2013 (For Current Financial Year) in such case,

·         “X” Need Not Deduct Tax at Source (TDS) because single payment is below Rs 30,000/-

Illustration – 2

   Everything is same as above (Illustration – 1) except that Payment to be made is Rs. 31,000 instead of Rs 15,000/- in Such case:

·         “X” Should Deduct Tax at Source because Single Payment made is more than Rs 30,000/-

Illustration – 3

If “X” makes following payments to Contractor “Y” during this Financial Year

·         Paid Rs. 20,000/- on 10/04/2013

·         Paid Rs. 25,000/- on 15/05/2013

·         Paid Rs 26,000/- on 12/06/2013

·         Paid Rs 10,000/- on 13/07/2013

·         In Such Case “X” Need NOT Deduct tax at source on 10/04/2013, 15/05/2013 and 12/06/2013 because each Single Payment were below 20,000 and Aggregate of payments is Rs 71,000/- as on 12/06/2013 which is less than 75,000

·         BUT  As on 13/07/2013 the Aggregate of Payments is 81,000 (20,000+25,000+26,000+10,000 ) which is more than 75,000 therefore :

·         “X” Should Deduct Tax at Source on 13/07/2013 for Total of Payments i.e., Rs 81,000/-  (Since he didn’t deduct any TDS for previous payments)

·         He should Deduct Tax at Source (TDS) for all Future Payments to “Y” till the end of Financial Year

How much Tax should I deduct at Source? (Rates of TDS on Contracts)

Following are the rates of TDS if the Contractor (Payee) provides his Permanent Account Number (PAN)

·         In case the Contractor/Sub-Contractor (Payee) is an Individual or HUF then – 1%

·         In case the Contractor/ Sub-Contractor (Payee) is a Partnership Firm, Company, BOI other than individuals – 2%

NOTE: In case Contractor Fails to Provide Permanent Account Number (PAN) then TDS rate applicable is 20%.