Payments to Contractors:
Section 194C of The Income Tax Act 1956 regulates Tax Deducted at Source (TDS) for any payment made to the contractors for any work.
With effect from 1st October 2009, the definition of the work has been expanded and includes” manufacturing or supplying a product according to specification of a customer by using material purchased from such customer”.
In other words, if goods have been manufactured as per specification by using the material supplied by us, it will cover under definition of “work” and attract TDS.
TDS to be deducted at the time of credit to vendor account or making payment, whichever is early @ 1% for an Individual and HUF and 2% other than Individual and HUF.
TDS will be deducted on
a) The invoice value excluding the value of material, if such value is mentioned separately in the invoice or
b) On the whole of the invoice value, if the value of material is not mentioned separately in the invoice.
Hence, we will be deducting TDS @ 2% on any payment made to co-maker on the invoice value as reduced by the value of material provided; the same has been mentioned in the invoice itself, otherwise it will be deducted on the total invoice value.
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