To Differentiate between TDS under section 194C and 194I

CMA Jitendra Singh , Last updated: 04 September 2008  

As we well aware , the deduction of tax at source (TDS) is happening for various payments made for services received in site under related sections of Income Tax Act. But, there may be chances of overlapping on provisions of tax deductions under section 194C and 194 I of the Income Tax Act which generally happens in construction sites.
The section 194C is applicable to work contracts/agreements where the “works” are specified and rates of TDS are 2.06%(< = 1 Crore) and 2.266%(>1 Crore) .And in cases of subcontractors/advertisement contracts ,the rates of TDS are 1.03%(< = 1 Crore) and 1.133%(>1 Crore)
The section 194 I is related with the rental /hire charges payment which was limited to land & building rental till 13th July 2006 but w.e.f 14th July 2006,the coverage of section 194 I has been expanded to the equipments,plants ,machineries ,furnitures, computers and vehicles rental/hire charges payments.
( in the cases where fixed nature of service is absent and hired P&M or vehicles are used in the random discretion of the service receiver).
Hence, we must exclude the rental payments from the purview of section 194C and TDS should be as per specified rate under section 194I of Income Tax Act.
The TDS rates u/s 194 I are as under –
194 I _ Rent of Land/building                                        _ 20.60%(<= 1 Crore)     22.660% (>1 Crore)
194 I_ Rent of P& M (DG Sets, Cars, Wireless etc)      _ 10.30%(<= 1 Crore)     11.330% (>1 Crore)
If the vehicles in site has been taken on rent and at the fixed contract of pickup/drop facility of staff (work specified),hence in presence of work as per definitions under 194C,the section 194I will not be attracted.The detailed circular of CBDT No:681 is attached herewith for your reference

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CMA Jitendra Singh
Category Income Tax   Report



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