Section 194C: Payment to contractor/sub-contractor

Aisha (Finance Professional) (5712 Points)

28 January 2023  

Section 194C of the Income Tax Act deals with the tax deduction at source (TDS) on payments made to contractors or sub-contractors for carrying out any. The section applies to all persons, including individuals and Hindu Undivided Families (HUFs), who are responsible for making payments to contractors or sub-contractors.

The TDS rate under this section is 2% for payments made to an individual or HUF and 1% for payments made to others, if the work is done under a contract and the contract value is more than Rs. 30,000. However, if the contract value is less than Rs. 30,000 then TDS is not required to be deducted.  The aggregate amount paid or credited during the financial year is less than Rs 1 lakh. TDS Rate is 20% if PAN not available.

The term "contractor" as per the section 194C means a person who enters into a contract with the person responsible for making payment for carrying out any work. The work can be of any kind, whether it is of original work, repair work, maintenance work, or any other kind of work.

A "sub-contractor" means a person who enters into a contract with a contractor for carrying out any work. In other words, a sub-contractor is a person who is appointed by the contractor to carry out a part of the work contracted by the contractor.