TDS

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CA.GAURAV SACHWANI (Querist)
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27 October 2009 Is TDS is to be deducted on tne bill of a building contractor in vat is included and no service tax is charged seperately

Nilesh Damji Chheda

Nilesh Damji Chheda (Expert)
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28 October 2009 dear gaurav.
if the contract is composite one i.e material + labour, then TDS is deductible

CA.GAURAV SACHWANI

CA.GAURAV SACHWANI (Querist)
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29 October 2009 Dear Sir,

I want to know on that bill only vat is charged not service tax then how can we find out amount of material and labour for the purpose of TDS please reply

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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27 July 2025 Great question!

When you have a **composite contract** (i.e., it includes both **material and labour**), and **only VAT is charged** on the bill (no service tax), here's how to handle **TDS under Section 194C**:

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### ✅ **TDS Applicability on Composite Contracts (Material + Labour)**

* **Section 194C** of the Income Tax Act mandates that TDS is to be deducted **on the entire contract value**, unless the **value of materials** is clearly mentioned **separately** and supported by **material invoices**.

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### 📌 **Case 1: Material and Labour Amount Not Separately Mentioned**

If the bill is **inclusive (composite)** and **does not break up the material and labour part**, then:

👉 **TDS is to be deducted on the total invoice amount**, **including VAT**.

✅ Example:

* Invoice amount: ₹1,00,000
* VAT included: ₹4,000
* **TDS to be deducted on ₹1,00,000**, because labour portion is not separated.

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### 📌 **Case 2: Material and Labour Amount Mentioned Separately**

If the contractor **clearly mentions** the material and labour separately (e.g., ₹70,000 materials + ₹30,000 labour), and gives **supporting material purchase proof**, then:

👉 **TDS is to be deducted only on the labour component** (₹30,000).

This must be backed by proper **break-up in the contract** or **invoice**, along with relevant documentation.

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### ❌ Why VAT Inclusion Doesn’t Matter for TDS?

Even if VAT is charged, **TDS is based on the gross payment** to the contractor unless exclusions are specifically allowed (like separate material component).

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### 🔍 Important Note (CBDT Circular):

Per **CBDT Circular No. 715 dated 8-8-1995**, question 29:

> *In a composite contract involving supply of goods and services, if the invoice does not separately mention the value of materials, TDS should be deducted on the gross amount.*

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### ✅ Summary:

| Situation | TDS Deducted On |
| --------------------------------------- | ---------------------- |
| No breakup of material & labour | Full invoice incl. VAT |
| Clear breakup & proof of material value | Only on labour portion |

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Let me know if you want a **sample TDS calculation** or **journal entry format** for this case.

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