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Tds on advance payment to contractor for supply of equipment

TDS 2623 views 2 replies

Priyank Patni

Assistant Manager (Finance)

33 Points Joined April 2012

ABC Ltd. (Employer/Principal) has entered into a contract with XYZ Ltd. (contractor) for construction of a factory. The contract is segregated into 2 parts - (a) Supply of Plant & Equipments - Rs. 10,000/- and (b) Civil Works - Rs. 25000/-.

ABC Ltd. is making 10% payment in advance against separate Invoices raised by XYZ Ltd. for Supply and for Civil Works.

Since this is a contract, Sec. 194C is attracted. Whether TDS should be deducted on the advance payment of Rs. 1,000/- made against supply invoice also?

Note: Invoice in this case is only raised for taking advance. No actual work or supply is made. The advance can be considered as Mobilizing Advance.

Replies (2)

karan jit singh

Consultant

1299 Points Joined November 2010

May be yes.

Anand

CA - Assistant General Manager - Taxatio

1606 Points Joined December 2012

Dear Priyank

The question raised by you can in reality only be answered on a complete appreciation of the contract documents since the facts of the case are absolutely crucial. Section 194C is applicable on contract for work. Work can also include supply of material where it is embedded in the work to be done.

Typically if the contract for supply and civil work are separate and the invoices for the same are also separate there is no question of deducting TDS on the supply portion. In the instant case, you have stated that a separate invoice will be issued for supply. Even if no work has been done or no supply has been done, advance paid for purchase of the equipment is not liable to TDS.

By ensuring documents are in order there will not be a requirement to deduct TDS on the supply portion

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