194C vs 194H for labour supply charges

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This discussion clarifies the TDS applicability for labour supply contracts. It examines whether payments to a contractor who supplies labour but doesn't supervise should be taxed under Section 194C (work contract) or 194H (commission). The consensus is that Section 194C applies, even when the principal employer directly pays the labourers' wages and the contractor receives a percentage of the total labour cost.

k chakraborty

k chakraborty (Querist)

10 March 2025 A person (X) enters into a contract with a company (Y) to supply labor for executing a specific work. X is obligated to provide the required labor but does not supervise or control their work. The company (Y), as the principal employer, directly pays wages to the laborers to ensure compliance with labor laws (such as timely payment, EPF deductions, etc.). X is paid separately as a percentage of the labor supplied. Given that:

1. X does not act as an agent of Y but has an obligation to supply labor for a specific work.

2. The wages are paid directly to laborers, not routed through X.

3. X receives a fixed percentage payment based on the labor supplied.

Would the payment to X attract TDS under Section 194C (supply of labour for carrying out work) or Section 194H (commission/agent)? Additionally, should TDS under 194C be deducted on the wages paid directly to laborers?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

14 March 2025 Yes, 194C TDS applicable including the wages paid to labourers.

k chakraborty

k chakraborty (Querist)

16 March 2025 sir, just to reconfirm, here the labour wages are paid directly to the labours by the company and the contrctor only get a % of total labour wages.. given that contractor has not received the labour wages should we deduct tds on that amount?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

16 March 2025 Yes, TDS has to be deducted on total contract value including labour payment.

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