Section 194C - TDS on Payment to Contractor [Updated for FY 2021-22]

CA.R.S.KALRA | Last updated: 04 August 2021

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Quick Summary

Section 194C of the Income Tax Act governs Tax Deducted at Source (TDS) on payments made to resident contractors for carrying out work. This section applies to various entities, including government bodies, corporations, companies, and individuals or HUFs meeting certain turnover thresholds. TDS is generally deducted at the time of payment or credit, with specific rates for individuals/HUFs and other persons. There are exemptions, such as for single payments under £30,000 or aggregate payments under £1,00,000 in a financial year, and specific conditions for transporters.

Who is responsible to deduct tax u/s 194C? Any specified person responsible for paying any sum to any resident-contractor for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract. Following are the specified persons The Central Government

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FAQ :

Any specified person responsible for paying any sum to a resident-contractor for carrying out work is responsible for deducting TDS. This includes government bodies, local authorities, corporations, companies, co-operative societies, universities, and individuals or HUFs with turnover exceeding specified limits.

TDS is not required if the consideration for a contract does not exceed £30,000 for a single payment, and the aggregate of such payments during the financial year does not exceed £1,00,000. Additionally, for transport operators who own 10 or fewer goods carriages and provide their PAN and a declaration, TDS may not be deducted.

The term 'work' includes advertising, broadcasting, telecasting, carriage of goods and passengers (except by railways), catering, and manufacturing or supplying a product as per customer specifications using materials purchased from the customer or their associate.

TDS should be deducted at the time of actual payment to the contractor or at the time of crediting the contractor's account, whichever occurs earlier.

The TDS rate is 1% if the payment is made to an individual or HUF, and 2% if the payment is made to any other person. These rates are without including surcharge and cess. If the recipient's PAN is not available, tax is deducted at 20%.

No, Section 194C does not apply to payments for professional services. Such payments are covered under separate provisions, such as Section 194J.