TDS at the time of pmt of advance or not??

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This query is : Resolved

abhishek singh (Querist)

30 September 2010 suppose we are making advance payment to contractor for goods as well as services which is not ascertainable at the time of aedvance payment but will be clear only when the bill is received.

so tax is to be deducted at the time of advance payment or when bill from contractor(indian resident) is received.

accountant contention is that since at the time of advance payment we donot know how much is for goods and how much is for services so tds will be deducted not at the time of payment of advance but only when the bill is received.

plz. clarify if possible then provide me with case law.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)

30 September 2010 Presuming that you are taking about section 194C,you have to ascertain first (not case laws) that whether the activity awarded will come under the term "work" as per the substitued section 194C effective from 1/10/2009. I observe from the query that the contractor is puchasing materials from open market(not from you) and rendering the services to you. If that is so, no need to deduct income tax u/s 194C either on the advace payment or on the bill payment vide the substitution referred above.

NISHIT A. DOSHI

NISHIT A. DOSHI (Expert)

07 October 2010 Hi,

As per the provisions of section 194c of income tax act,1961, we have to deduct tds on the payment made to contractor at the time of payment or credit whichever is earlier.

Hence on advance payment, you have to make tds. However, for this purpose, you have to determine that the payment which you have made come under the provisions of section 194c or not.

For this when you are making the payment for goods, it is not liable for tds.

However, if payment is made for services and if it is classified as work then you are liable to make tds.

So, in your scenario, you need to make clear that how much payment is for goods and services and accordingly on advance payment you need to deduct TDS.

REGARDS,
C.A.NISHIT DOSHI

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