TDS should be deducted u/s. 194C. Following are the extracts of a CBDT circular, which indicates that all service contracts are covered by the TDS provisions under section 194C at 2.22% on gross basis. Subsequently, section 194J was introduced prescribing TDS on the technical and professional services only. Hence, as per one view, for other services, 194C still applies on all the remaining services including telecommunication services..
As per Madras High Court decision, communication services are not technical services under section 194J. However, section 194C was not examined by the High Court and it still remains a debatable issue.
Extracts of cir.:
Guidelines pursuant to Supreme Court decision - In view of the Supreme Court decision in Associated Cement Co. Ltd. v. CIT [1993] 201 ITR 435, the CBDT has issued the following guidelines in regard to the applicability of the provisions of section 194C :—
(i) The provisions of section 194C shall apply to all types of contracts for carrying out any work including, transport contracts, service contracts, advertisement contracts, broadcasting contracts, telecasting contracts, labour contracts, material contracts and works contracts.
(ii) No deduction at source under section 194C shall be required to be made in the consideration for the contract does not exceed the prescribed amount which at present is Rs. 10,000.
(iii) The provisions of section 194C would not apply in relation to payments made for hiring or renting of equipments, etc.
(iv) The provisions of section 194C would not apply in relation to payments made to banks for discounting bills collecting/receiving payments through cheques/drafts, opening and negotiating Letters of Credit and transactions in negotiable instruments.
(v) Service contracts would be covered by the provisions of this section since service means doing any work as explained above.
(vi) The provisions of this section will not cover contracts for sale of goods:
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