tds on stiching contract

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manisha kejriwal (Querist)
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14 July 2010 Should tds be deducted on Contract made for suppling of cloth as well as stiching them as per my specification if they cross the limit of Rs 50000 ?

CA. BIJENDER KR. BANSAL

CA. BIJENDER KR. BANSAL (Expert)
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14 July 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.

It is further proposed to make the amendments effective from the 1st day of October, 2009. Accordingly, the proposed amendments will apply to credits or payment effected on or after 1st October, 2009.

i.e if the Material purchased from the customer and sold finished goods by using of such material, then TDS will be deducted as per above .

in your case material is not supplied by you. Hence No tds will be deducted.