TDS on material + fabrication

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The discussion clarified TDS applicability on supply and fixing contracts involving material and fabrication. If material and labour are billed separately, TDS may apply only on labour charges; otherwise, TDS applies on the total invoice value under Section 194C.

M. R. VAKALIYA

M. R. VAKALIYA (Querist)
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20 April 2010 Dear sirs,
We have given contract to supply and fix of plastic boards. The vendor is manufacturer of boards who will cut the boards as per sizes given by us and will come and fix the boards at our place. Now my question is (Irrespective of bill amount)
(1)On which amount we should deduct TDS either on total bill amount or only on labour charges?
(2) Vendor has to show seperate amount for material and designing/fixing labour charge or total amount for both?
(3) how many percent TDS will be charged?

Please reply of my query

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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20 April 2010 ASK YOUR VENDOR TO GIVE SEPARATE BILLS FOR MATERIAL AND LABOUR CHARGES OTHERWISE TDS WILL BE DEDUCTED ON TOTAL BILL AMOUNT.
RATE OF TDS:--

INDIVIDUAL OR HUF @1%
OTHERS @ 2%

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M. R. VAKALIYA

M. R. VAKALIYA (Querist)
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20 April 2010 If he shows material and labour seperate in same bill will it work?

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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20 April 2010 NO. IT WILL BE BEST IF VENDOR GIVES SEPARATE BILLS.

CA. BIJENDER KR. BANSAL

CA. BIJENDER KR. BANSAL (Expert)
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20 April 2010 . Clarification regarding “work” under section 194C.

There is ongoing litigation as to whether TDS is deductible under section 194C on outsourcing contracts and whether outsourcing constitutes work or not. To bring clarity on this issue, it is proposed to provide that “work” shall not include manufacturing or supplying a product according to the requirement or specification of a customer by using raw material purchased from a person other than such customer as such a contract is a contract for ‘sale’. This will however not apply to a contract which does not entail manufacture or supply of an article or thing (e.g. a construction contract).

It is also proposed to include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, within the definition of ‘work’. It is further proposed to provide that in such a case TDS shall be deducted on the invoice value excluding the value of material purchased from such customer if such value is mentioned separately in the invoice. Where the material component has not been separately mentioned in the invoice, TDS shall be deducted on the whole of the invoice value.

As per clarification , vendor can show seprately labour charge and material value on same invoice. But he has to take care at the time of billing. Service tax wil be charged on labour component if applicable and vat or cst will be on material component.