Deduction of TDS on advance to contractors

This query is : Resolved 

08 July 2008

Hello friends,

I am stuck up with an issue whether TDS will be dedcuted on the advance paid to the sub contractors of the construction company ? Reply ASAP and when should TDS be deducted if contractor expenses pertaining to january are paid in my knowledge TDS is to be deducted in the month of march only as the expns is ebing debited in the month of march, but what about TDS on advance given pertaining to the month of january, contractors are for work contracts

waiting for an early response, thanks in advance for your valueable suggestions.

Yatesh Prakash Renuke (Expert)
08 July 2008

TDS is to be deducted on the amount credited or paid whichever is early. if we are giving the 100% advance then TDS should be deducted at the time of advance payment. But if we are paying partial advance then you can deduct TDS on the last part payment.

Late CA Sampat Jain (Expert)
08 July 2008

In a case where advance payments are made during the execution of a contract and such payments are to be adjusted at the time of final settlement of accounts, tax will have to be deducted at the time of making advance payments if the total payment is likely to exceed Rs. 20,000.

CA. Vineet Grover (Expert)
08 July 2008

Dear Anubhav,

TDS need to be deducted @2.06% or 2.266% as applicable for amount exceeding Rs.20000/- for single payment or Rs.50000/- in total on accrual / payment basis whichebver matures earlier.

So in the instant case, TDS need to be deducted on the advance payment based on the rule as mentioned hereinabove.


Anubhav Bansal (Querist)
08 July 2008

Hi All/Vineet, not with intention to hurt your sentiments for your opinion, can you please inform me whether there is any judgement of any court/or explaination/notification by the CBDT on such dedecution of TDS on advances, as your opinion differs with that of Mr.Sampat Jain and Mr.Yatesh.

CA Siddhartha Bhardwaj (Expert)
02 April 2012

Dear Anubhav, if you carefully read Section 194C, it clearly provides that TDS is required to be deducted at the time of credit or payment, whichever is earlier.

So, TDS needs to be deducted on advance payment.

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