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TDS u/s 194C
The most used section related to TDS is 194C. It is commonly used yet this is very complicated section. From 1st October, 2009 it is changed. Now TDS rate is divided in new two parts:
(i)                  One percent where the payment is being made or credit is being given to an individual or a HUF.
(ii)                Two percent where the payment is being made or credit is being given to a person other than an individual or a HUF, of such sum as income-tax on income comprised therein.
TDS under this section will be deduced when payment is paid or credited by following limits:
(i)                  when the invoice value exceeds 20,000/- Rs.
(ii)                Where aggregate of the amounts of such sums credited or paid during the F.Y. exceeds 50,000/- Rs.
So if a bill is received of Rs. 21,000/- then TDS will be deducted. But if next bill from party is 5,000/- and there is no transaction after this in this F.Y. then no TDS will be deducted as second bill is not more than 20,000/- and total amount of F.Y. is less than 50,000/-
TDS will be deducted on following sums:
(i)                  on the invoice value excluding the value of material, if such value is mentioned separately in the invoice; or
(ii)                on the whole of the invoice value, if the value of material is not mentioned separately in the invoice.
No TDS will be deducted on Transporter of goods if he is providing PAN. If he is not providing PAN then TDS will be deducted on 1% or 2% whichever is applicable till 31st March, 2010. On or after 1st April 2010, if transporter of goods is not providing PAN then TDS rate will be 20%.
One of the main problems in TDS u/s 194C is when a contractor is providing material with specific work done on this. Whether TDS will be deducted on this or not? As per Circular no 681 dt 8 March, 1994
Para 7(vi)
The provisions of this section will not cover contracts for sale of goods
Para 7(vi)(a)
 Where, however, the contractor undertakes to supply any article or thing fabricated according to the specifications given by Government or any other specified person and the property in such article or thing passes to the Government or such person only after such article or thing is delivered, the contract will be a contract for sale and as such outside the purview of this section
There was a contradiction between Circular 681 (mentioned above) and Circular 715 dt 8 August, 1995. So CBDT examined again this matter and they clarified that it has to examined whether the contract in question is a ‘contract for work’ or a ‘contract for sale’ and TDS would apply if only it is a works contract as per the principles in this regard laid down in Para 7(vi) of Circular No 681 dt 8 March, 1994.

Published by

CA Prashant Gupta
(DGM (F & A))
Category Income Tax   Report

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