Tds on contractual employee

Save Share

This query is : Resolved

nikhil (Querist)
Follow

04 February 2013 If any corporation appoints anybody for a particular no of years on contractual basis which says monthly compensation and gives a designation to the employee, but the employee do not get salary slip and is not entitle to participate in PF then in such a case the tds deductible for payments to such person shall be under section 192 or 194J. What shall be the standing of the PF if the Employer is covered under PF act can such contractual employee refused for PF deduction and is the employeer discharged from his liablity if the employee refuse

CA Prashant Gupta

CA Prashant Gupta (Expert)
Follow

04 February 2013 it depends on contract. if it shows that person as consultant then it is 194J. but if it treat person as employee then it is 192.
PF doesn't effect that. if a senior employee cross the minimum PF limit then there is no necessity to deduct PF.
so only PF is not the deciding factor for this.

nikhil

nikhil (Querist)
Follow

04 February 2013 Thanks For the Reply. But how is PF not deductible and what is the limits. As the Company is already covered under PF act??

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)
Follow

27 July 2025 Great question! Let me break it down clearly:

---

### TDS on Contractual Employee — Section 192 or 194J?

* **Section 192** applies to **salary paid to an employee**.
* **Section 194J** applies to **fees for professional or technical services** — e.g., consultants, contractors, freelancers.

---

### How to decide whether TDS is under 192 or 194J?

* **If the person is in an employer-employee relationship**, getting fixed monthly salary, even on contract, **TDS should be deducted under Section 192**.
* **If the person is engaged as a consultant or professional on contract, without employee benefits**, TDS is under **Section 194J**.
* **Designation or salary slips are not conclusive** — the nature of the contract and relationship matters.

---

### What about PF deduction?

* If the employer is covered under the Employees' Provident Funds & Miscellaneous Provisions Act (EPF Act):

* **All employees drawing wages up to ₹15,000 per month must be enrolled for PF**.
* For employees earning **above ₹15,000/month, the employer can exempt them from PF contributions** if certain conditions are met.
* If the person is a **contractual employee**, but **not on payroll** and the contract states they are not employees, PF may **not be applicable**.
* But if the contract terms and work indicate an employer-employee relationship, PF deduction is **mandatory**, regardless of the person’s refusal.

---

### Employer liability if employee refuses PF deduction

* The **employer cannot be absolved of PF liability** just because the employee refuses.
* The **employer is legally bound to deduct and deposit PF** if the person qualifies as an employee under the PF Act.
* Non-compliance may attract penalties.

---

### Summary

| Factor | Result |
| --------------------------------------------- | -------------------------------------------- |
| Contractual person is employee | TDS under Section 192; PF mandatory |
| Contractual person is consultant/professional | TDS under Section 194J; PF not applicable |
| Employee refuses PF | Employer still liable to deduct & deposit PF |

---

If you want, I can help draft a checklist or contract clauses to clarify the status of such contractual workers!

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now