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TDS on payments to contract employees

Harini S (service) (26 Points)

06 October 2009

Hi.There are certain contract persons working in our organisation.The contract is for a limited period and after the completion of teh said period, the contract may/mey not get extended. What is the TDS rate on such payments?Do these payments fall under salaries or under prof.charges.

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Sorabh Gupta (Manager ( Taxation )) (877 Points)
Replied 06 October 2009

Harini

Could you tell me that what type of sevces they are providnig to the compnay. If ther are providing the professional/technical services the 194J OR if they are under contrsct payment then 194C

So please clarify...............

1 Like

Aditya Maheshwari (CA in Practice) (35857 Points)
Replied 06 October 2009

Yes the above clarification is required and then your query will be answered accordingly.

Harini S (service) (26 Points)
Replied 06 October 2009

They are providing services similar to that of an employee. The only difference being that they are not on the payroll and are employed for a short term period.

Sunil (Trader) (2610 Points)
Replied 07 October 2009

Contract workers on a daily wage syatem are not contractors. They are employees only even if not in the permanent employees muster register and therefore what wages (whether dily or monthly) is in nature of salary. Please note you have to deduct PF, ESIC and P Tax as applicable in your area on such payments and TDS is applicable only as per slab rates for salary. Please remember that for the payment to be termed as salary it has to be continuous employment and there is any employer employee relationship. You have people on probation for 3 months. They are employees even if not in the register of permanent employees.

A contractor is someone you give a contract to carry out certain work. A contractor can work as a one man show on his own or he can employ people to work for him or can further assign work to sub contractors. If there is office work to be done, you employ a peon and you pay him a salary. This is your employee. You can also call someone for 1 or more days on a daily wage or a temporary priod for a few months. That too would be salary and you are liable to deduct PF, ESIC and PT etc. as applicable to you. If you wish to outsource the functions of your office peon or sepoy you have a service called 'Concierge on Call' . This can be an individual contractor working on his own or he may be working on an organised basis. Payments for these kind of functions are under 194C and limits apply. If the services are more of technical, managerial or secretarial in nature, then 194J. If it relates to marketing of goods or commission or brokerage on sales of goods then 194H. You have to test with the nature of work you are contracting. In such contracts you deduct TDS as per applicable rates to the section whether the contractor works alone or is organised. You are not liable for the PF or ESIC or PTax. However, if the contractor you use employs people who are located inside your premises, you are deemed principal employer and you have to deduct PF, ESIC and PTax for the contractor's payment for his employees in your premises.

Therefore first please test whether they qualify to be employees versus contractors. If contractors, please test the nature of work and deduct tax at rates applicable to the relevant section.

1 Like

SURESH (ARTICLE ASSISTANT) (40 Points)
Replied 29 June 2012

this payment fall under the salaries & wages

we have deduct PF,ESI and PT ,and also deduct TDS @ 1% or 2% on contract basis

whether it is correct or not

Santosh V. Thakur (Sr. Accountant) (187 Points)
Replied 29 June 2012

@ SURESH

1. if you pay salary/wages & deduct PF, ESIC, PT, it means they are the employee (may be not permanent) on your company's payrolls & hence tax deduction as per income tax slab rate on salary wages (SEC-192)

And

2) if you make payment to direct to the contractor, then deduct TDS @ 1% (individual) / 2% (others) (SEC-194C)

Above both things are different & tax treatment depends on nature of service.

1 Like

Lokesh B M (Accountant) (21 Points)
Replied 12 August 2015

Hello any one can help me regarding the below issues.

Whether TDS is applicable for contranct on outsouced executive level employees(Their salary is less than Rs.10000). If TDS is applicable @ what rate to be deduct.

srikant das (Student CA Final ) (24 Points)
Replied 22 December 2016

If a person is working on contract basis as a Professional in a Ltd. Company and draws monthly professional fees amounting to Rs. 1,10,000/- after deduction of TDS,is he liable to pay service tax or obtain registration under the service tax act?

srikant das (Student CA Final ) (24 Points)
Replied 22 December 2016

A Limited company engages Executives/Employees on retirement from their respective departments after superannuation on Contract / Consultancy basis and are being paid monthly remuneration by way of consolidated fees after deduction of TDS @ 10% u/s 194J. Some of the such employees are drawing their remuneration more than Rs 1,00,000/- per month i.e exceeding Rs 10 lakhs per annum, their TDS is being deducted u/s 194J.

You are requested to advise in such matter whether services of this type of category of employees / consultants whether attracts Service Tax and Registration under Service Tax Rules,1994 at the part of employee (at their end).

In this context,seeks your valued opinion on following:-

1) Whether Deduction of TDS on such payments under section 194 J is correctly being made.

2) If not, under which section deduction to be made.

3) Whether category of such employees who are getting remuneration by way of consolidated fees as per terms and condition of their engagement attracts service tax. If so who is to pay service tax.

This may please be treated as urgent.

Susaumya Parihar (Advocate) (24 Points)
Replied 08 February 2017

Hi Sunil,

How r u Sir..

Sir... i am a Mangement Trainee (Legal) in an autonomous, statutory Body (Locate in Delhi) which comes under the Ministry of Corporate Affairs.

Sir i want to know wheather PF deduction os applicable or any other benefits is applicale as my consolidated salary is Rs 25,000/- per month and sir in my appintment letter it is written as "You will be paid a consolidated salary of rs 25,000/- p.m. In addition to this you will be paid Employer Contribution towards Provident Fud as per the EPF Act, 1952 as applicable"

Sir plz advice me .....n i am working in the organisation from March, 2014.

Sir if u can provide me ur email ID & Number

Susaumya Singh Parihar

9650312478

Susaumya Parihar (Advocate) (24 Points)
Replied 08 February 2017

Originally posted by : Sunil
	Contract workers on a daily wage syatem are not contractors. They are employees only even if not in the permanent employees muster register and therefore what wages (whether dily or monthly) is in nature of salary. Please note you have to deduct PF, ESIC and P Tax as applicable in your area on such payments and TDS is applicable only as per slab rates for salary. Please remember that for the payment to be termed as salary it has to be continuous employment and there is any employer employee relationship. You have people on probation for 3 months. They are employees even if not in the register of permanent employees. A contractor is someone you give a contract to carry out certain work. A contractor can work as a one man show on his own or he can employ people to work for him or can further assign work to sub contractors. If there is office work to be done, you employ a peon and you pay him a salary. This is your employee. You can also call someone for 1 or more days on a daily wage or a temporary priod for a few months. That too would be salary and you are liable to deduct PF, ESIC and PT etc. as applicable to you. If you wish to outsource the functions of your office peon or sepoy you have a service called 'Concierge on Call' . This can be an individual contractor working on his own or he may be working on an organised basis. Payments for these kind of functions are under 194C and limits apply. If the services are more of technical, managerial or secretarial in nature, then 194J. If it relates to marketing of goods or commission or brokerage on sales of goods then 194H. You have to test with the nature of work you are contracting. In such contracts you deduct TDS as per applicable rates to the section whether the contractor works alone or is organised. You are not liable for the PF or ESIC or PTax. However, if the contractor you use employs people who are located inside your premises, you are deemed principal employer and you have to deduct PF, ESIC and PTax for the contractor's payment for his employees in your premises. Therefore first please test whether they qualify to be employees versus contractors. If contractors, please test the nature of work and deduct tax at rates applicable to the relevant section.

Thanks alot sir.....is the same rules applicable at present

S Parihar

Mahendra Ramesh Jamdhade (Practice ) (27 Points)
Replied 02 November 2018

My question is, If we paying behalf of contractor PF, PT, TDS then GST will applicable on inclusive of deduction or Exclusive of deduction ( PF PT TDS)