Tds on insulated vehicle hire charges

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CA Koustubh Vishnu Bhatye (Querist)
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16 August 2011 Respected Experts,

I need your opinion on following issue:

The company is going to hire the insulated vehicle. There is contract between vehicle owner and the company to charge fixed amount per month irrespective of the no. of trips. In addition to this, if certain pre-determined kms are crossed, the company will pay extra charges for the excess distance travelled. Expenses including driver's salary will be born by the vehicle owner.

Now the question is whether to make TDS u/s 194C or 194I?

What is the nature of transaction, Contract or Rent?

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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16 August 2011 The possession and control rests with the owner. Therefore, it is a contract with in the meaning of section 194C of the IT Act,1961.

CA Koustubh Vishnu Bhatye

CA Koustubh Vishnu Bhatye (Querist)
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16 August 2011 Thanks very much. Will it make the difference, if the vehicle is parked in the premises of company when there is no work? I mean to say if there is no order for company, the vehicle will stay in the premises of Company and the transporter can not take the order other than the company.

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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27 July 2025 Great question! Here's how to look at TDS on insulated vehicle hire charges in this scenario:

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### Key facts you shared:

* Fixed monthly charge regardless of trips
* Extra charges if kilometers exceed predetermined limit
* Owner bears expenses like driver salary
* Vehicle possession & control stays with owner
* Vehicle may stay parked at company premises when no work is assigned
* Owner cannot take other orders when vehicle is at company premises

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### TDS section to apply: **Section 194C (Contract payments)** or **Section 194I (Rent)**?

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### Analysis:

#### 1. **Section 194C (Contract for work) applicability:**

* If **possession and control** of the vehicle **remains with the owner**, it’s treated as a *contract* for transportation services.
* Owner bears all expenses (driver, maintenance), so company is essentially *hiring a service* (work contract).
* Even if fixed monthly payment plus variable based on km, the vehicle is still **used by the company** but **owned and controlled by the owner**.
* So TDS applies under **Section 194C** (Transport contract).

#### 2. **Section 194I (Rent) applicability:**

* Section 194I applies if company **takes possession and control of vehicle**, i.e., leasing or renting.
* If vehicle is **parked at company premises**, but company **does NOT control it** (owner cannot take other orders, but still owns & controls the vehicle), then it's less likely to be rent.
* However, if vehicle is *exclusively* for company use and company has **possession and control**, then TDS under **194I** may be considered.

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### So, your additional question:

> If vehicle is parked at company premises when no work, and transporter cannot take other orders, does it change TDS section?

* Merely parking at company premises **does not mean possession and control has shifted to company**.
* The key is who controls the vehicle's use.
* If **owner controls** the vehicle (when, how, where used), it's **194C**.
* If **company controls** (decides use, timings, access), then possibly **194I**.

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### Practical conclusion:

* In your described case, **possession and control rest with the owner**, so **TDS under Section 194C** is applicable.
* Fixed monthly + variable charges = contract payments.
* If facts change (company takes control), then reconsider.

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If you want, I can also help you with the exact TDS rate and threshold for this scenario.

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