TDS on Payment to Contractor (Sec 194C) (AY 2023-24): Any person who is paying any payment to any resident contractor for doing any work is responsible to deduct TDS on that payment. Tax is deductible under section 194C only if payment is made in pursuance of a contract between a specified person and resident contractor. You can check who are the specified person given below. In this article, we will discuss how to deduct TDS u/s 194C, how to deposit, how to file a TDS return, issue a TDS certificate and more.
Table of Quick Summary for TDS on Payment to Contractor u/s 194C: Here is the quick summary for TDS on Payment to Contractor under section 194C for A.Y. 2023-24 F.Y. 2022-23. You should also read the complete article to understand the quick summary related to section 194C.
|Person Responsible to Deduct Tax||Specified person|
|Exemption Limit||Rs. 30,000 for a single payment or aggregate amount in the financial year does not exceed Rs. 1,00,000*|
|TDS Rates||1% (If the recipient/payee is an Individual/HUF)
2% (If the recipient is any other person)
|Time of Deduction of TDS||At the time of payment or credit whichever is earlier|
|Time for Deposit of TDS||Within one week from the last day of the month of tax deduction, For the month of March, before 30th April.|
|Certificate of TDS||Form 16A for each quarter is to be issued within 15 days from the due date for furnishing the statement of tax deducted at source under rule 31A i.e. on or before 15th August, 15th November, 15th February and 15th June|
|Quarterly Return of TDS||In Form No.26Q on or before 31st July, 31st October and 31st January for the first three quarters and on or before 31st May for the last quarter.|
|AO’s Certificate for Deduction at Lower Rate or Non-Deduction||Yes, Application in Form No. 13 Appropriate Certificate to be issued by AO|
|Is Self Declaration by Payee for Non-Deduction Admissible||No|
Who are specified person u/s 194C for deducting TDS on Payment to Contractor (A.Y. 2023-24 F.Y. 2022-23): Tax is deductible under section 194C only if payment is made in pursuance of a contract between a specified person and resident contractor. The following are the specified persons for this purpose.
- Central Government or any State Government or
- Any Local Authority or
- Any Corporation by a Central or State or Provincial Act or
- Any Company
- Any co-operative society or
- Any authority constituted in India by or under any law engaged in housing accommodation or
- Any Society or
- Any Trust or
- Any University or
- Any Foreign Government or
- Any Firm or
- Any Individual/HUF/AOP/BOI if the amount paid or credited is not exclusively for the personal purposes (of an individual or any member of HUF) and if total sales, turnover or gross receipts from business or profession carried on him exceed Rs.1 crore in the case of business or Rs.50 lakh in the case of the profession during the financial year immediately preceding the financial year in which the income is to be credited or paid (applicable from April 1, 2020).
TDS Rates on Payment to Contractor
TDS Rates u/s 194C for payment to contractors: The person who is responsible to deduct TDS (as given above) under section 194C must deduct TDS for A.Y. 2023-24 F.Y. 2022-23 as per the rates given below.
- 1% (where the payment is being made or credit is given to an individual or a HUF)
- 2% (where the payment is being made or credit is to be given to any other entity)
- The rate will be NIL if the transporter quotes his PAN.
- TDS shall be deducted @ 20% in case a deductee fails to furnish his Pan to the deductor (Sec. 206AA)
- No surcharge, education cess and SHEC shall be added. Hence, TDS shall be deductible at a basic rate.
Time of Deduction
When tax has to be deducted on contract payments u/s 194C: The payer or specified persons will deduct TDS on payment to contractor for A.Y. 2023-24 F.Y. 2022-23 at the specified time given below.
- The payer will responsible to deduct TDS on contract payment at the time of payment or credit whichever is earlier.
- Payment should be more than Rs. 30,000/- for one contract/each contract or Rs.1,00,000/- (w.e.f. 1-6-2016) in total for all the contracts. The deduction will be made when the payment is credited or paid.
- When the amount exceeds Rs. 30,000 then the deduction will be made on the earlier amount also. Section 194 C is applicable for resident contractors only. For non-residents, section 195 will be applicable.
Time Limit to Deposit of TDS on Payment to Contractor
When to deposit TDS under section 194C (: As per rule 30, the following time limit will be applicable in respect of TDS deduction on contract payment under section 194C.
Where the due date of deposit of TDS falls between March 20, 2020, and June 29, 2020, and such amount is paid on or before 30th June 2020, then for the period of delay interest will be chargeable at the rate of 0.75% per month (or part thereof). However, no penalty shall be levied (or no prosecution shall be sanctioned) in respect of such payment for the period of delay.
Where the tax is deducted by the officer of the Government:
- on the same day where the tax is paid and
- on or before 7 days from the end of the month in which the deduction is made.
In any other case,
- on or before 7 days from the end of the month in which the deduction is made and
- on or before 30th April, where the income or amount is credited or paid in the month of March.
Time Limit for TDS Certificate
When to issue TDS certificate (Form 16A) u/s 194C on payment to contractor (A.Y. 2023-24 F.Y. 2022-23)?: The payer/deductor is responsible to issue TDS certificate within the time as given below. The payer should issue form 16A within 15 days from the due date of furnishing the statement/return. So the following is the time limit to issue of Form 16A for payment to contractor including Sub-contractor.
|Quarter Ends||Time Limit|
|30th June||15th August|
|30th September||15th November|
|31st December||15th February|
|31st March||15th June|
TDS Returns (TDS on Contract Payment u/s 194C)
When are the due dates to file TDS return u/s 194C: The payer should submit TDS return/statement for A.Y. 2023-24 F.Y. 2022-23 in form no. 26Q for the payment to contractor including sub-contractors on or before
|Quarter Ends||Time Limit|
|30th June||31st July|
|30th September||31st October|
|31st December||31st January|
|31st March||31st May|
Other Important Points
Examples of work contracts
Bank charges, oral contracts, piece rate contracts, advertisement contracts, broadcasting contracts, travel agents, airlines, clearing & forwarding contracts, courier agencies, catering contracts, Professional & technical services and other contracts.
No TDS deduction on Payment to Transporters if PAN furnished
If the operators furnish his PAN to the deductor then the deductor should not deduct TDS. But the deductor will give the valid ‘PAN’ detail in the ‘Quarterly returns of TDS’ of the deductees within the time limit to get the exemption. It will be done only in the case of transporters, who engaged in the business of plying, hiring or leasing goods carriages.
On which amount does TDS have to be deducted?
TDS will be deducted from the amount credited or paid for the services used. However, in the case of manufacturing or product in which the services have involved then the amount to deduct TDS is only for the service used if it is mentioned in the invoice. However, if there is not a separate amount for service, then the TDS will be deducted generally on the total amount of invoice.
Contractor and Sub-contractor
Giving service to someone for the price is called a contract. The service provider will be called the contractor. The contractor’s duty is to complete the task for which an agreement has executed. When a contractor further enters into a contract with another person to do the jobs completely or part that is called a sub-contractor.
It may be any work, deduction u/s 194C will be applicable when the contracts are made for any work. The following are the positions when the liability will arise.