TDS ON CONTRACT – 194 C

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Section 194C states that a person is responsible for paying any sum to the resident contractor for carrying out any work (including the supply of labor), in pursuance of a contract between the contractor and the following:

  • The Central Government or any State Government
  • Any local authority
  • Any corporation established by or under a Central, State or Provisional Act
  • Any company
  • Any co-operative society
  • Any authority constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the needs for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages or for both
  • Any society registered under the Society Registration Act, 1980 or under any such corresponding law to the Act in any Part of India
  • Any trust
  • Any university or deemed university
  • Any firm

RATES

  • Payment / Credit to resident individual or HUF – 1% with PAN & 20% without PAN
  • Payment/Credit to any resident person other than individual / HUF – 2% with PAN & 20% without PAN
  • Payment/ credit to Transporters – 0% with PAN & 20% without PAN

Exceptions to TDS on Payment to Contractor
Where materials are supplied by the government, the question is whether deduction will be made with reference to gross payment to the contractor or the net payment, i.e., gross payment minus deductions, if any,
On account of materials supplied by the government, will have to be decided in the light of the terms of the particular contract and the conduct of parties thereto.
Where the contractor has undertaken to construct a building or a dam, and the government or other specified person has undertaken to supply all or any of the materials necessary for the work at the stipulated prices, the deduction will be related to the gross payment without excluding any adjustments on account of the cost of materials.
Where the contractor has undertaken only to provide the labour for the work, the ownership of the materials supplied remaining at all times with the government or another specified person, the sum payable to the contractor in respect of the contract will only be the amount paid for such labour or services and will, thus, not include the price of the materials supplied by the government or other specified persons.
Circumstances TDS u/s 194C is not deductible
No tax is required to be deducted in the following cases:

  • Where the sum paid or credited in pursuance of any contract does not exceed Rs. 30,000, or
  • Where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year does not exceed Rs. 1,00,000 the person responsible for paying such sums will not deduct TDS under this section
  • Individual or HUF not to deduct tax if the payment or amount credited to the contractor is for personal use

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