Table of Contents
1. Section 194J of the Income Tax Act, 1961
Tax to be deducted at source from the payment made to the resident contractors and sub-contractors.
2. Who should deduct tax under section 194C?
Specified person who is responsible for paying any sum to the resident contractors for carrying out any work in pursuance of a contract between them.
3. Who are the specified persons responsible to deduct tax under this section?
- Central Government or State Government
- Local authority
- Company
- Co-operative society
- Statutory authority dealing with housing accommodation
- Society registered under the societies registration act, 1860
- Trust
- Universities
- Any Government of a foreign State or a foreign enterprise or any association or body established outside India
- Firm
- Any person, being an individual or HUF or AOP or BOI whose turnover/gross receipts exceed Rs. 1 crore or Rs. 50 lakhs respectively.
4. What is the maximum limit up to which no tax needs to be deducted under this section?
No tax needs to be deducted under this section
- If a single payment exceeds Rs. 30,000 or
- If the aggregate of payments exceed Rs.1,00,000 in a financial year.
5. When should the tax be deducted?
At the time of payment of such sum or at the time of credit of such sum to the contractor’s account, whichever is earlier.
6. What is the rate at which tax should be deducted under this section?
If the person to whom the payment is made (i.e. the contractor or subcontractor)
- Is an Individual/HUF – tax is deducted at 1%
- Other than Individual/HUF – tax is deducted at 2%
7. Type of works covered under this section for which TDS is applicable?
All types of contract work including,
- Advertising.
- Broadcasting and telecasting including promotion of the broadcasted programmes.
- Carriage of goods or passengers by any mode other than by railways.
- Catering
- Manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer or its associate.
8. TDS implications on the amount paid to a person carrying out the business of plying, hiring or leasing of goods carriage
As per section 194C, no tax needs to be deducted on the amount paid to a person carrying on the business of plying, hiring or leasing of goods carriage provided such person
- Furnishes his PAN and
- A declaration to the effect that he owns 10 or less goods carriages at any time during the previous year.
9. Tax implications under section 194C on supply of goods and labour?
In cases where payment is made against an invoice having both supply of goods and labour, tax has to be deducted in the following manner.
- If material value is separately mentioned in the invoice – tax should be deducted on the value excluding the value of material (i.e. only on the labour/service portion)
- If material value is not separately mentioned in the invoice – tax should be deducted on the entire invoice value.
10. Should any tax be deducted under this section while making payment to a non-resident?
- No, the provisions of section 194C does not apply to a non-resident.
- Tax has to be deducted as per the provisions of section 195 while making payments to non-residents.
11. Mr. X pays Rs. 40,000 to a contractor for fixing the fence surrounding his house, should Mr. X deduct TDS while making the payment to the contractor?
No tax needs to be deducted in respect of payments made by individuals / HUF for their personal purposes.
12. At what rate should the advertising agency deduct TDS while making payments to its artists, models, photographers, etc?
Payments made to any person for the purpose of advertising is only covered under the scope of this section, therefore payments made by the advertising agency to its models, artists etc will attract TDS under section 194J and not under this section.
13. Important clarifications issued by CBDT regarding applicability of section 194C
- Sponsorship of debates, seminars and other functions in schools/colleges/associations – It is in the nature of advertising – provisions of Section 194C would apply
- Payment made by a cable operator to get licence of TV channels is covered u/s 194C
- Payment made to travel agency or an airline for purchase of a ticket for travel is not liable for TDS u/s 194C.
- Payments made to courier agency including clearing or forwarding agent – Provisions of section 194C is applicable.
- TDS not applicable on serving food in a restaurant because the restaurant services are not covered under catering.
- Payments made to an electrician is liable for TDS u/s 194C
- Rendering any services for procurement of orders is covered under section 194J and not under section 194C
14. Whether a contract for putting up a hoarding would be covered under section 194C or 194-I of the Act?
- The contract for putting up a hoarding is in the nature of advertising contract and provisions of section 194C would be applicable. It may, however, be clarified that if a person has taken a particular space on rent and thereafter sublets the same fully or in part for putting up a hoarding, he would be liable to TDS under section 194-I and not under section 194C of the Act.
15. Whether payment to a recruitment agency can be covered by section 194C?
Provisions of section 194C apply to a contract for carrying out any work including supply of labour for carrying out any work. Payments to recruitment agencies are in the nature of payments for services rendered. Accordingly, provisions of section 194C shall not apply. The payment will, however, be subject to TDS under section 194J of the Act.