TDS on Payment to Contractor Section 194C of Income Tax Act FY 2017-18 AY 2018-19

TDS on Payment to Contractor, Section 194C of Income Tax Act For FY 2017-18 AY 2018-19, Rate of TDS u/s 194C

TDS on Payment to Contractor : Section 194C of Income Tax Act provides for deduction of tax at source from the payment made to resident contractors and sub-contractors.

Any person responsible for paying any sum to a resident contractor for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and the Central Government, a State Government, local authority, statutory corporation, a company, co-operative society, any statutory authority dealing with housing accomodation, any society registered under the Societies Registration Act, 1860, any trust or any university or any firm or any Government of a foreign State or foreign enterprise or any association or body established outside India or an individual, HUF, AOP or BOI subject to tax audit under clauses (a) or (b) of section 44AB in the immediately preceding financial year must deduct tax at source at the prescribed rate from such sum.

TDS on Payment to Contractor
TDS on Payment to Contractor

Time of TDS Deduction U/s 194C : Tax has to be deducted at the time of payment of such sum or at the time of credit of such sum to the account of the contractor, whichever is earlier.

Where any such sum is credited to any account in the books of account of the person liable to pay such income, such crediting is deemed to be credit of such income to the account of the payee and the tax has to be deducted at source. The account to which such sum is credited may be called “Suspense account” or by any other name.

However, relief has been provided in respect of payments made by individuals/HUFs to a contractor exclusively for personal purposes.

Rate of TDS on Payment to Contractor : The rate of TDS under section 194C on payments to contractors would be 1%, where the payee is an individual or HUF and 2% in respect of other payees. The same rates of TDS would apply for both contractors and sub-contractors.

The applicable rates of TDS under section 194C are as follows –

Payee TDS Rate
Individual / HUF contractor/sub-contractor 1%
Other than individual / HUF contractor/sub-contractor 2%
Contractor in transport business (if PAN is furnished) Nil
Sub-contractor in transport business (if PAN is furnished) Nil

Threshold limit for deduction of tax at source under section 194C

No deduction will be required to be made if the consideration for the contract does not exceed Rs. 30,000. However, to prevent the practice of composite contracts being split up into contracts valued at less than Rs. 30,000 to avoid tax deduction, it has been provided that tax will be required to be deducted at source where the amount credited or paid or likely to be credited or paid to a contractor or sub-contractor exceeds Rs. 30,000 in a single payment or Rs. 1,00,000 in the aggregate during a financial year.

Therefore, even if a single payment to a contractor does not exceed Rs. 30,000, TDS provisions under section 194C would be attracted where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid to the contractor during the financial year exceeds Rs. 1,00,000.

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