TDS on Contractor Payment

This article is an overview of Section 194C, which deals with TDS on payment of works made to a contractor or sub-contractor.

Definition of Contractor

Provisions of Section 194C relating to TDS on payment to contractors/sub-contractors are applicable only where contract is either a "work contract" or a "contract for supply of labour for works contract". These provisions are, therefore, not applicable for payments made under contract for sale of goods. "Work" as defined in section 194C includes (a) advertising, (b) broadcasting, (c) carriage of goods and passengers by any mode of transport other than by railway, and (d) catering. With effect from 1/10/2009, the expression "work" also includes manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer. However, it will not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer.

Who is required to deduct TDS?

TDS must be deducted by all persons and entities who are entitled to pay any sum to any resident contractor for the pursuance of any work in accordance with a contract. TDS must be deducted for contractor payments by the following class of persons and entities:

The Central or State Government.
Any local authority.
Any corporation established by or under a Central, State or Provisional Act.
Any company, whether listed on a recognised stock exchange or not.
Any co-operative society.
Any authority constituted for the purpose of meeting the needs of housing accommodation or that of planning, development or improvement of cities, towns or villages.
Any society registered under the Societies Registration Act, 1860, or under any similar laws.
Any trust constituted for charitable or religious purposes.
Any University deemed or otherwise.
Any government of a foreign state or foreign enterprise or any association or body established outside Indian frontiers.
Any partnership firm.
Any person, being an individual or a Hindu Undivided Family, or an AOP/BOI, whether incorporated or not, whose total income exceeds the specified monetary limits during the financial year immediately preceding the financial year in which sum is credited or paid to the account of the contractor.
Any AOP/BOI whose books of accounts are required to be audited during the immediately preceding financial year.

Time of TDS Deduction

TDS is to be deducted either at the time of credit of such sum to the account of the payee, or at the time of payment thereof in cash or by issue of cheque or by any other mode, whichever is earlier. For this purpose, any sum credited to any account, whether called "Suspense account" or by any other name in the books of the account of the payer, is treated as credit of such income to the account of the payee.

TDS Rate for Contractors

The following are the rates of TDS until the end of the financial year 2017-18:

1% where the payment is being made or credit is being given to an individual or a HUF.
2% where the payment is being made or credit is to be given to any other entity.
If PAN isn't quoted in the above cases, the TDS rate will be 20%.

Taxpayers should note that surcharges, education cess and SHEC will not be added. TDS should be deducted at basic rates.

Contracts for Which TDS Must Be Deducted

TDS must be deducted for works contracts. Works contract as specified in Section 194C includes the following:

Advertising services.
Broadcasting and Telecasting services including production of programs of such broadcasting or telecasting.
Carriage of goods and passengers by any mode other than railways.
Catering services.
Manufacturing and supplying products to the customer using materials provided by the customer.
Supply of labour for works contract.

Tax should not be deducted on the GST component.

Exemption from TDS for Contractors

TDS on Contractor payments need not be deducted in the following cases:

Small Payments

TDS on contractor payment needs to be done when the amount credited or paid to a contractor or sub-contractor exceeds Rs.30,000 in a single payment or Rs.1,00,000 in aggregate during a financial year. Thus, TDS is not required if the amount paid or credited does not exceed a sum of rupees 30,000 in a single payment and the aggregate payment does not exceed Rs. 1,00,000 during the financial year.

Transport Operators

TDS to contractor is not required for any amount paid to a person who is engaged in plying, leasing or hiring of goods carriages, provided that he does not own more than 10 goods carriage vehicles during the financial year. This exemption is subject to furnishing of PAN and submission of the taxpayer's business transaction details to the IT Department.

Personal Purposes

Payment by an individual or HUF to a resident contractor for personal purposes is not subject to TDS.

Payment of TDS

The following is the due date for remittance of TDS on contractor payment deducted from payment by a taxpayer:

In case the deductor is a Government, tax is paid on the same day of deduction, whether or not the challan is generated, or on or before seven days from the end of the month in which tax is deducted.
In the case of a Non-Government deductor, the amount is credited in the month of March or before the 30th of April, or on or before seven days from the end of the month in which tax is deducted.

Due Date for Filing TDS Returns

The deadline to file returns for the quarter of April-June would be the 31st of July.
The deadline to file returns for the quarter of July-September would be the 31st of October.
The deadline to file returns for the quarter of October-December would be the 31st of January.
The deadline to file returns for the quarter of January-March would be the 31st of May.

Due Date for Issue of TDS Certificate

All deductors must ensure proper and timely issue of certificates, except for that of salaries. The certificate must be issued within the following dates:

Non-Government Deductor

The deadline for issuing certificates for the months of April-June would be the 30th of July.
The deadline for issuing certificates for the months of July-September would be the 30th of October.
The deadline for issuing certificates for the months of October-December would be the 30th of January.
The deadline for issuing certificates for the months of January-March would be the 30th of May.

Government Deductor

The deadline for issuing certificates for the months of April-June would be the 15th Of August.
The deadline for issuing certificates for the months of July-September would be the 15th of November.
The deadline for issuing certificates for the months of October-December would be the 15th of February.
The deadline for issuing certificates for the months of January-March would be the 30th of May.