tds on supply of labour
This query is : Resolved
05 March 2009
say company X has distributors in various areas and company X has agreed with such distributors to appoint persons themselves for marketing company products in market and salary expenses of all marketing people will be reimbersed by company X and billing made by distributor to compny are seperate for distributor's commission and salary claim, my doubt is whether from company X point of view i can consider this transaction as contract given to distributors as supply of labour and deduct tds accordingly in 94c and give reference of any case law
05 March 2009
First clarify whether these employees are employed under Company X or under the distributor, as in lot of cases they are the employees on the payroll of Company while they work under the distributors.
Section 194C does not seems correct in this case.
Section 194C does not seems correct in this case.
27 July 2025
Got it! Since the employees are employed by the distributors (not Company X), and Company X reimburses the salary expenses separately, here’s how TDS should be handled:
---
### Applicability of TDS on Supply of Labour in this scenario:
* Since distributors employ their own staff for marketing, and Company X reimburses salary expenses and pays commission separately, the **payments made by Company X to distributors are essentially contract payments for services rendered**.
* **Section 194C (TDS on payments to contractors)** is applicable here, as the distributors are effectively providing a service (marketing through their staff).
* Therefore, Company X **should deduct TDS under Section 194C** on the total amount paid to distributors (commission + salary reimbursement), **provided the payment exceeds Rs. 30,000 per contract** (threshold as per Section 194C).
---
### Important points:
* Since the distributors employ the labour, the liability to deduct TDS on their employees’ salaries does **not** lie with Company X, but with the distributors themselves under Section 192 (TDS on salary).
* Company X deducts TDS only on the amounts it pays to the distributors for the contract service.
---
### Case law / references:
* In **CIT v. Intercontinental Consultants & Technocrats Pvt. Ltd.** (2010), the Supreme Court held that payments for supply of labour amount to contract payments and are covered under Section 194C.
* Also, CBDT Circular No. 555, dated 12.05.1993, clarifies that payments for supply of labour/services are contract payments attracting Section 194C TDS.
---
### Summary:
| Transaction | Who employs labour? | TDS Deduction by Company X |
| ----------------------------------- | ------------------- | --------------------------------------------------------------------------------- |
| Distributors employ their own staff | Distributors | Deduct TDS u/s 194C on total payment to distributors (commission + reimbursement) |
| Employees are on Company X payroll | Company X | TDS on salary u/s 192 by Company X |
---
If you want, I can draft a sample TDS calculation or communication template for your company. Let me know!
---
### Applicability of TDS on Supply of Labour in this scenario:
* Since distributors employ their own staff for marketing, and Company X reimburses salary expenses and pays commission separately, the **payments made by Company X to distributors are essentially contract payments for services rendered**.
* **Section 194C (TDS on payments to contractors)** is applicable here, as the distributors are effectively providing a service (marketing through their staff).
* Therefore, Company X **should deduct TDS under Section 194C** on the total amount paid to distributors (commission + salary reimbursement), **provided the payment exceeds Rs. 30,000 per contract** (threshold as per Section 194C).
---
### Important points:
* Since the distributors employ the labour, the liability to deduct TDS on their employees’ salaries does **not** lie with Company X, but with the distributors themselves under Section 192 (TDS on salary).
* Company X deducts TDS only on the amounts it pays to the distributors for the contract service.
---
### Case law / references:
* In **CIT v. Intercontinental Consultants & Technocrats Pvt. Ltd.** (2010), the Supreme Court held that payments for supply of labour amount to contract payments and are covered under Section 194C.
* Also, CBDT Circular No. 555, dated 12.05.1993, clarifies that payments for supply of labour/services are contract payments attracting Section 194C TDS.
---
### Summary:
| Transaction | Who employs labour? | TDS Deduction by Company X |
| ----------------------------------- | ------------------- | --------------------------------------------------------------------------------- |
| Distributors employ their own staff | Distributors | Deduct TDS u/s 194C on total payment to distributors (commission + reimbursement) |
| Employees are on Company X payroll | Company X | TDS on salary u/s 192 by Company X |
---
If you want, I can draft a sample TDS calculation or communication template for your company. Let me know!
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