TDS rate on Contractors – Section 194C
Section 194C Provision
- TDS shall be deducted u/s 194C in case of payment by any person (i.e. Resident or Non-Resident) to a resident (i.e. contractor) for carrying out any work, in pursuance of contract between the contractor and contractee.
Timing of Deduction of Tax u/s 194-C
- TDS shall be deducted at the time of
- Credit of such sum to the account of payee; or
- Payment in cash or by way of issue of cheque/ draft/ any other mode
Whichever is earlier
- Where such sum is credited to any account by whatever name called, in the books of the account of the person liable to pay such sum, shall be deemed to be credit of such sum to the account of the payee.
Rates of TDS u/s 194-C
- TDS shall be deducted @ following rates u/s 194C depending on whether the payee is an Individual/ HUF or other than Individual/ HUF :
- Credit/ Payment is made to an Individual/ HUF – 1%
- Credit/Payment is made to a person other than an Individual/ HUF – 2%
TDS on contractor limit and exemption from tax deduction u/s 194-C ?
- Where the amount credited/ paid does not exceed Rs. 30,000 in single transaction, in other words TDS on contractor limit is Rs. 30,000.
Further, no TDS shall be deducted, where the amount or aggregate of amounts credited/ paid during the FY does not exceed Rs. 1,00,000.
- Where consideration paid by an individual or HUF is on account of personal purpose.
- Payment made to Non-Resident contractor shall not attract TDS u/s 194C. However, it shall be governed by provisions of Section 195.
On which value, TDS shall be deducted ?
- TDS shall be deducted on invoice value excluding the value of material (if such value is mentioned separately in the invoice).
TDS shall be deducted on whole of the invoice value (if value of material is not mentioned separately in the invoice).
Higher rate of TDS u/s 194-C
- TDS @ 20% shall be deducted where no PAN has been furnished by contractor.
No Surcharge and HEC on TDS
- No Surcharge and HEC shall be added to the above mentioned rates.
Multiple Choice Questions – TDS rate on Contractors – Section 194C
1. Section 194C provides for deduction of tax at source on the payments made to ____________ contractors/ sub-contractors.
c. Both resident and non-resident
d. None of the above
2. Who would be liable to deduct tax at source on payments made to resident contractor u/s 194C ?
c. Individual or HUF liable to tax audit in immediately preceding FY
d. None of the above
3. Chanchal Pvt. Ltd. has to make payment of Rs. 40,000 per month to Mr. Munna for operation and maintenance of factory premises. At what rate, TDS would be deducted u/s 194C ?
4. Neetu Pvt. Ltd. has to make payment of Rs. 70,000 per month to Geeta India Ltd. for operation and maintenance of factory premises. At what rate, TDS would be deducted u/s 194C ?
5. Contract ________ sub-contract for the purpose of deduction of TDS u/s 194C.
MCQs – How to deduct TDS rate on Contractor with Example
6. Hemant Limited, manufactured certain toy cars for Abhishek Private Limited, for which the necessary material was provided by Abhishek Private Limited. The service charges for such work were Rs. 1,00,000, which was included in the gross amount of material supplied, worth Rs. 6,00,000. In such a case, the TDS deducted would be _________
7. Hoshiyar Limited, manufactured certain toy cars for Bipasha Private Limited, for which the necessary material was provided by Bipasha Private Limited. The service charges for such work were Rs. 50,000, which was separately mentioned alongwith the gross amount of material supplied, worth Rs. 4,50,000. In such a case, the TDS deducted would be ___________