194C threshold

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This discussion clarifies Section 194C of the Income Tax Act concerning Tax Deducted at Source (TDS) on contractor payments. It addresses a scenario where previous bills are under £30,000, but a subsequent single payment exceeds this amount, while the total annual payments remain below £100,000. The key question is whether TDS should be deducted on the entire amount or just the excess over £30,000, and if future payments are subject to TDS. The prevailing view suggests TDS is not applicable if individual bills are below £30,000, even if a single payment crosses this threshold, provided the total annual payments do not exceed £100,000, as per Section 194C(5).

k chakraborty

k chakraborty (Querist)

28 May 2024 Scenario: In a financial year, there are previous bills to the contractor each less than Rs. 30,000. A single subsequent payment is made to the contractor exceeding Rs. 30,000, but the total payments made throughout the year (including the one exceeding Rs. 30,000) don't exceed Rs. 1,00,000.

Question 1: Under Section 194C, for the payment exceeding Rs. 30,000, should TDS be deducted only on the amount exceeding Rs. 30,000 or on the entire amount paid to the contractor so far?

Question 2: In this scenario, considering the total payments remain under Rs. 1 lakh for the financial year, would TDS be deducted on future payments to the same contractor even if the individual bill amount stays below Rs. 30,000?
Note: Here single bills are assumed to be from different contracts.
i am of the view that answers to both of these would be in negative because 194C (5) says: "No deduction shall be made from the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor, if such sum does not exceed thirty thousand rupees"
This to me means that Deduction is prohibited from any bill (previous or future) if it does not exceed 30000 subject to the yearly 100000 threshold.