TDS on hiring of car
This query is : Open
YOGESH GUPTA
(Querist)
16 June 2008
On hiring of car whether TDS would be deducted as rent(u/s 194I) or as contract (194c)
CA BISHAN AGARWAL
(Expert)
16 June 2008
NO TDS IS NOT DEDUCTABLE ON HIRING A CAR BECAUSE IT IS NOT A WORKS CONTRACT U/S 194C & ALSO IT IS NOT A RENT U/S 194I
YOGESH GUPTA
(Querist)
16 June 2008
sir., as per section 194c TDS would be deductable on carriage of goods or passenger. If total biling of the travel agency exceed Rs.50000/- then 194c applicable as per my view.
But amendmend u/s 194I whehter hiring of car would be treated as rental of plant to deduct TDS in particular section
But amendmend u/s 194I whehter hiring of car would be treated as rental of plant to deduct TDS in particular section
16 June 2008
It is worthwhile to mention that the basic TDS rate for rent under Section 194-I is 10 per cent whereas for payment to a contractor under Section 194C is 2 per cent.
For deciding whether the payment of hire charges by the employer to the agency attracts deduction of tax under Section 194-I or Section 194C, the terms of the contract between the parties need to be examined.
If the agreement is for leasing of the car per se, the payment would attract tax deduction under Section 194-I.
However, if the agreement is for a service of transportation to be provided by the agency, the payment would attract tax deduction under Section 194C (the definition of the term ‘work’ includes inter alia carriage of goods and passengers by any mode of transport).
Control matters
Another important factor to be considered is whether the car is under the control of the company or the agency.
In the former case, the payment would generally constitute rent, whereas in the latter, the payment would be for carriage of passengers.
Guidance on the appropriate rate to be applied can also be taken from Circular No. 558 dated March 28, 1990, issued by the Central Board of Direct Taxes, which deals with deduction of tax at source from payments by a State Transport Corporation to private bus owners.
Some of the relevant criteria indicated in the Circular are provision of a driver, keeping the bus (in our case, the car) road worthy, payment based on usage, etc., which indicate that the contract was a service contract and the provisions of Section 194C are applicable.
In sum, if a chauffeur-driven car is hired for one day, Section 194C would be attracted as the payment is essentially for carriage of passengers.
On the other hand, if a car is leased for, say, a year and is under the control of the company and it is the company’s responsibility to run and maintain it, the payment would be in the nature of rent and Section 194-I would be applicable.
For deciding whether the payment of hire charges by the employer to the agency attracts deduction of tax under Section 194-I or Section 194C, the terms of the contract between the parties need to be examined.
If the agreement is for leasing of the car per se, the payment would attract tax deduction under Section 194-I.
However, if the agreement is for a service of transportation to be provided by the agency, the payment would attract tax deduction under Section 194C (the definition of the term ‘work’ includes inter alia carriage of goods and passengers by any mode of transport).
Control matters
Another important factor to be considered is whether the car is under the control of the company or the agency.
In the former case, the payment would generally constitute rent, whereas in the latter, the payment would be for carriage of passengers.
Guidance on the appropriate rate to be applied can also be taken from Circular No. 558 dated March 28, 1990, issued by the Central Board of Direct Taxes, which deals with deduction of tax at source from payments by a State Transport Corporation to private bus owners.
Some of the relevant criteria indicated in the Circular are provision of a driver, keeping the bus (in our case, the car) road worthy, payment based on usage, etc., which indicate that the contract was a service contract and the provisions of Section 194C are applicable.
In sum, if a chauffeur-driven car is hired for one day, Section 194C would be attracted as the payment is essentially for carriage of passengers.
On the other hand, if a car is leased for, say, a year and is under the control of the company and it is the company’s responsibility to run and maintain it, the payment would be in the nature of rent and Section 194-I would be applicable.
Azmathullah Khan
(Expert)
17 June 2008
If the Car is under ur control, i.e., ur maintaining the car taking from the agency then TDS @ 10% u/s 194i will apply, or else if the agency is maintaining all the cost, incl., salaries of driver, Fuel cost, etc. then TDS come u/s. 194C
No TDS on Service tax to be deducte u/s. 194i.
No TDS on Service tax to be deducte u/s. 194i.
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