TDS deduction on vendor invoice
This query is : Resolved
27 April 2022
Hi,
Vendor has raised a invoice with 18% GST with 998311 SAC code for the services provided by his employees to our compnay as a contractors.
While making payment to vendor company do we need to deduct TDS?
Because we dont pay salary to his employees directly, vendor company makes salary payment to his employees.
please clarify
Thanks
Sai
Vendor has raised a invoice with 18% GST with 998311 SAC code for the services provided by his employees to our compnay as a contractors.
While making payment to vendor company do we need to deduct TDS?
Because we dont pay salary to his employees directly, vendor company makes salary payment to his employees.
please clarify
Thanks
Sai
27 April 2022
Yes, TDS applicable under section 194c payment to contractors at 2% exclusive of GST.
27 April 2022
Thank you for response sir. Does this apply to professional, technical and business services in IT sector.
27 April 2022
10% TDS applicable by such services provided by freelancers.
27 April 2022
Here, we dont have freelancers, we have contract with a vendor who supplies IT resources for our work on contract basis. so Do we need to apply deduction of 10% TDS on the invoice raised by vendor for the services rendered by his employees as contractors to my firm. or we just pay the invoice amt without deductions, and then vendor will pay with 10% TDS deductions to his employees?
27 April 2022
Deduct 2% under section 194c contract service.
For employees salary TDS applicable.
For employees salary TDS applicable.
27 April 2022
If they are providing professional services then TDS to be deducted u/s 194J instead of 194C @ 10%
27 April 2022
Which source it should be deducted, at primary source or secondary source?
primary means: where the contractor is directly employed
secondary: where vendor has assigned his employee on a contract basis
primary means: where the contractor is directly employed
secondary: where vendor has assigned his employee on a contract basis
27 July 2025
Great question! Here's a clear breakdown of the TDS deduction in your situation with the vendor supplying IT resources as contract employees:
---
### Scenario Recap:
* You have a contract with a **vendor company**.
* Vendor’s employees work for you on a contract basis (IT resources).
* Vendor raises an invoice with 18% GST and SAC code 998311 (support services).
* You pay the vendor — vendor pays salaries to their employees.
* Question: Should you deduct TDS on the vendor’s invoice? If yes, under which section and at what rate?
---
### What TDS applies here?
#### 1. **TDS on Vendor Invoice (Payment to Contractor):**
* Since the vendor is supplying manpower/services on a contract basis, **Section 194C (Contractor payments)** applies.
* **Rate: 2% TDS** on the invoice amount (excluding GST).
* This is because your company is paying a contractor for providing services.
#### 2. **TDS on Vendor’s Employees Salary:**
* Your vendor company is responsible for deducting TDS on salary paid to their employees as per **Section 192**.
* You are **not responsible** for deducting TDS on the salaries paid by the vendor to their employees.
---
### What about Section 194J (Professional fees)?
* Section 194J applies to professional or technical services.
* Since vendor provides **contract manpower supply (not freelancers or independent professionals)**, Section 194C applies.
* If you were paying freelancers or consultants directly for professional services, then Section 194J @ 10% would apply.
---
### Primary vs Secondary Source of TDS deduction:
* You are the **primary deductor** because you are making payment to the vendor company.
* The vendor is the primary deductor for TDS on salary paid to their employees.
* You do **not** deduct TDS on salaries paid by the vendor to their employees.
---
### Summary table:
| Payment To | Applicable TDS Section | TDS Rate | Deduct TDS on | Responsibility to Deduct TDS |
| ------------------------------------------ | ---------------------- | ----------- | ------------------------------ | ---------------------------------- |
| Vendor company (contract) | 194C | 2% | Invoice amount (excluding GST) | Your company (payer) |
| Vendor’s employees (salary) | 192 | As per slab | Salary paid by vendor | Vendor company |
| Freelancers / consultants (direct payment) | 194J | 10% | Invoice amount (excluding GST) | Your company (payer) if direct pay |
---
### Final advice:
* Deduct **2% TDS under Section 194C** on vendor invoice amount (excluding GST).
* Pay the vendor after deducting TDS.
* Vendor handles TDS on salaries of their employees separately.
* No TDS deduction under 194J in this case since vendor is supplying manpower, not providing professional services directly.
---
If you want, I can help you draft a note or mail for your accounts team or vendor explaining this. Would that help?
---
### Scenario Recap:
* You have a contract with a **vendor company**.
* Vendor’s employees work for you on a contract basis (IT resources).
* Vendor raises an invoice with 18% GST and SAC code 998311 (support services).
* You pay the vendor — vendor pays salaries to their employees.
* Question: Should you deduct TDS on the vendor’s invoice? If yes, under which section and at what rate?
---
### What TDS applies here?
#### 1. **TDS on Vendor Invoice (Payment to Contractor):**
* Since the vendor is supplying manpower/services on a contract basis, **Section 194C (Contractor payments)** applies.
* **Rate: 2% TDS** on the invoice amount (excluding GST).
* This is because your company is paying a contractor for providing services.
#### 2. **TDS on Vendor’s Employees Salary:**
* Your vendor company is responsible for deducting TDS on salary paid to their employees as per **Section 192**.
* You are **not responsible** for deducting TDS on the salaries paid by the vendor to their employees.
---
### What about Section 194J (Professional fees)?
* Section 194J applies to professional or technical services.
* Since vendor provides **contract manpower supply (not freelancers or independent professionals)**, Section 194C applies.
* If you were paying freelancers or consultants directly for professional services, then Section 194J @ 10% would apply.
---
### Primary vs Secondary Source of TDS deduction:
* You are the **primary deductor** because you are making payment to the vendor company.
* The vendor is the primary deductor for TDS on salary paid to their employees.
* You do **not** deduct TDS on salaries paid by the vendor to their employees.
---
### Summary table:
| Payment To | Applicable TDS Section | TDS Rate | Deduct TDS on | Responsibility to Deduct TDS |
| ------------------------------------------ | ---------------------- | ----------- | ------------------------------ | ---------------------------------- |
| Vendor company (contract) | 194C | 2% | Invoice amount (excluding GST) | Your company (payer) |
| Vendor’s employees (salary) | 192 | As per slab | Salary paid by vendor | Vendor company |
| Freelancers / consultants (direct payment) | 194J | 10% | Invoice amount (excluding GST) | Your company (payer) if direct pay |
---
### Final advice:
* Deduct **2% TDS under Section 194C** on vendor invoice amount (excluding GST).
* Pay the vendor after deducting TDS.
* Vendor handles TDS on salaries of their employees separately.
* No TDS deduction under 194J in this case since vendor is supplying manpower, not providing professional services directly.
---
If you want, I can help you draft a note or mail for your accounts team or vendor explaining this. Would that help?
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- Applicability of TDS on CFS, CHA fees, and shipping line charges
- Notice from IT DEPTT IF FD AMOUNT EXCEEDS 10 LACS
- Unable to generate and save json file for updated return
- Applicablity on tds
- GST payable under RCM
- Section 194I not showing in TDS RPU for Compnay Assessee for TDS on rent
- LTCG offset against property buy
- PRODUCT AND SERVICE CATEGORY CODE
- Tax audit & Switching from Presumptive taxation
- Eway bill requirement in case of retail sale of EV scooter
- Advance money given for supply of goods
- Import purchase entry
- Rule 54(1A) for Distributing ITC
- Received advance money for supply of goods but forfeited by us since full money not received
- EXCESS CREDIT REALTED GST REVERSAL
- Export invoice not reported
- CA Articleship Extension Matter
- GST OFFICER WRONG NOTICE
- "Please ensure that the Total of the Deductions u/s 54F match the same in Table D in Sch CG"
- Composition Dealer GST Annual Return Filing process
Trending Online Classes
-
LIVE Course on GSTR-9 & GSTR-9C (Technical | Practical | Concept - Based)
Sachin Jain03 November 2025
CAclubindia
