TDS DEDUCTION SUB-CONTRACTOR
1. What is Division 194C?
Section 194C states that in pursuance of a contract between the contractor and the following, any person responsible for paying any sum to the resident contractor for the performance of any work (including the supply of labour) shall:
a. The Central Government or any government of any State
b. Any municipality
c. Any company established under or by a Central , State or Provisional Act
d. Any enterprise
e. Any co-operative society
f. Any authority established in India by or under any law that is engaged either for the purpose of addressing and meeting the housing needs or for the purpose of planning , developing or improving cities, towns and villages or both
g. Any company registered in any part of India under the Society Registration Act, 1980 or under any such corresponding legislation
h. Any trust
i. Any university or deemed university
j. Any firm
2. What does work mean for Section 194C 's purpose?
In this section the expression "work" would include-
a. Advertisement
b. Broadcasting and television, including the production of programmes for such radio or television broadcasting
c. Transport of goods and passengers by any mode of transport, other than by rail
d. Restaurant
e. Manufacture or supply of a product in accordance with a customer's requirement or specification by using materials purchased from that customer's partner as defined in section 40A(2), but does not include the manufacture or supply of a product in accordance with a customer's requirements or specifications by using materials purchased from a person other than that customer.
TDS & 2019 Estimates
3. What is a Subcontractor according to Section 194C?
A "subcontractor" would mean whoever:
a. Who concludes a contract with the contractor to perform the work, or
b. For the provision of labour to perform all or part of the work undertaken by the contractor under a contract with any of the authorities or
c. For the supply, wholly or partially, of any work which the contractor has undertaken to supply to any of the authorities referred to in this section in terms of its contract.
4. What is Sub-contractor TDS?
Under the provisions of the Income Tax Act, any person (being an entrepreneur and not an individual or a Hindu Undivided Family) shall:
a. Responsible for payment of any amount to any resident
b. Where the contract is concluded with the subcontractor for the performance or the supply of labour for the performance of all or any part of the work undertaken by the contractor or for the supply of all or part of the work undertaken by the contractor,
i. At the time of credit of that sum to the subcontractor 's account or
ii . ii. Upon payment of this in cash or
And iii. Issuance of a check or draught or any other method, whichever is earlier
c. Deduct the amount equivalent to 1 per cent of the amount as income tax on the income therein comprised. The rate for transactions from 14 May 2020 to 31 March 2021 is 0.75 per cent.
5. Where is the Subcontractors Payment made, what Conditions must be satisfied?
a. Payment shall be made to a resident subcontractor, within the meaning of Section 6 of the Income Tax Act, 1961b. Payment shall be made by a resident contractor, not an individual or a HUF c. Payment shall be made for performing any work, including labour supply d. The amount of contract consideration in respect of which payment is made should be no less than Rs. 30,000 e. The amount should be credited or paid by the contractor in connexion with a contract concluded by him with the bodies specified
6. When do TDS require deduction under Section 194C?
The person in charge of paying to the resident contractor / subcontractor should deduct TDS,
a. Either at the time the payee credits that amount to the account or
b. Upon payment of this in cash or
c. By a check issue or any other mode whichever is earlier.
Where any sum is credited to any account, whether it is called a "Suspense account" or by any other name, such crediting shall be deemed to be credit of such income to the payee 's account in the account books of the person liable to pay that amount and the provisions of this section shall apply accordingly. Thus the tax must be deducted even if the amount payable to the resident contractor / subcontractor in his books is transferred to the payer's suspense account.
7. What is the TDS-rate?
Sl. Sl. No Nature of Payment TDS Rate provided PAN TDS rates are available from 14.05.2020 to 31.03.2021 TDS Rate if PAN is not available
1 Payment / Credit to individual resident or HUF 1 per cent 0.75 per cent 20 per cent
2 Payment / credit to a resident other than an individual / HUF 2% 1.5% 20%
3 Transporter payment / credit NIL NIL NIL 20 per cent
Note:- No addition of Surcharge, Education Cessation, and SHEC. Therefore TDS is deductible at basic rates.
8. What are Exceptions to TDS on Contractor Payment?
A. TDS reduction for composite contract
i. Where materials are supplied by the government, the question is whether deductions will be made in respect of gross payment to the contractor or net payment, i.e. gross payment minus deductions, if any,
ii . ii. Because of the materials supplied by the government, it will be necessary to decide in the light of the terms of the contract and the behaviour of the parties.
And iii. Where the contractor has undertaken to build a building or a dam and the government or other specified person has undertaken to supply all or any of the materials necessary for the work at the stipulated prices, the deduction shall be related to the gross payment without excluding any adjustments due to the cost of the materials.
IV. IV. Where the contractor has only undertaken to provide the labour for the work, the ownership of the materials supplied remaining with the government or another specified person at all times, the sum payable to the contractor in respect of the contract will only be the amount paid for the work or services and will therefore not include the price of the materials supplied by the government or other entities
Thus, the rate of TDS from payments made to any contractor by the government or other specified persons will be 2 per cent or 1 per cent of the gross payment or, as the case may be, the net payment, depending on the contract terms. The rate for transactions from 14 May 2020 until 31 March 2021 is 1.5 per cent or 0.75 per cent.
B. Deduction, if the party supplies the contractor with the material
i. No deduction is possible when delivering materials. Therefore no TDS is required to be produced. However, deductions are required when payment is made either in cash or in kind to contractor / subcontractor tax.
9. In what circumstances is it not deductible to TDS u / s 194C?
In the following cases no tax is deductible:
a. Where the sum payable or credited under any contract does not exceed Rs. 30,000, or b. Where the aggregate amount of such amounts credited or paid or likely to be credited or paid during the financial year does not exceed Rs. 1,00,000, TDS shall not be deducted under this section c. Individual or HUF tax not deductible if the payment or amount credited to the contractor is for personal use
i. No individual or HUF shall be liable to deduct income tax on the amount credited or paid to the contractor's account if that amount is credited or paid solely for the personal use of that individual or any HUF member.
ii . ii. No deduction shall be made from any amount credited or payable or likely to be credited or paid in the previous year to a contractor's account in the course of the plying, hiring or leasing of carriages of goods to the person who pays or credits the amount
10. 10. Time limit for the deposit of tax
a. Where the payment is made by the government or on behalf of it – the same day.
b. Where the payment is in any case other than the Government
i. If the amount is credited in March-on or before 30 April
ii . ii. In Other months – 7 days from the end of the month the deduction is made.
Note: It is the payer who is responsible for TDS.
11. 11. TDS Certificate Issuance
For payments other than wages, TDS certificates shall be issued on a quarterly basis in Form No.16A. According to Rule 31, every person responsible for deducting tax from payments other than wages shall issue a quarterly TDS certificate in Form No. 16A.
Quarter Date for Non-Government Deductor Date of deduction
April-June 30, August 15
July-September 30, November 15
October-30 January, 15 February
30 May-January to 30 May
As per CBDT Circular No. 1/2012, dated 9-4-2012, it is mandatory for all deducers to issue TDS certificates in Form No. 16A by generating the certificate through TIN's central system by downloading a unique TDS certificate number from the TIN website. These provisions shall apply in respect of all amounts deducted after or on 1-4-2012. The certificate thus issued can either be authenticated using digital signature or manual signature.
12. 12. Lower rate TDS
In accordance with Section 194C, where the AO is satisfied that the total income of the contractor or subcontractor justifies the deduction of income-tax at any lower rate or no deduction of income-tax, as the case may be, the AO shall, at the request of the contractor or subcontractor in that name, give it such certificate as is appropriate. The contractor or subcontractor may then provide the deductor with the lower rate or a nil TDS certificate.
13. 13. Need help Returning your TDS?
At our support no, you can contact and clear all your doubts concerning the related queries:
Section 194C states that in pursuance of a contract between the contractor and the following, any person responsible for paying any sum to the resident contractor for the performance of any work (including the supply of labour) shall:
a. The Central Government or any government of any State
b. Any municipality
c. Any company established under or by a Central , State or Provisional Act
d. Any enterprise
e. Any co-operative society
f. Any authority established in India by or under any law that is engaged either for the purpose of addressing and meeting the housing needs or for the purpose of planning , developing or improving cities, towns and villages or both
g. Any company registered in any part of India under the Society Registration Act, 1980 or under any such corresponding legislation
h. Any trust
i. Any university or deemed university
j. Any firm
2. What does work mean for Section 194C 's purpose?
In this section the expression "work" would include-
a. Advertisement
b. Broadcasting and television, including the production of programmes for such radio or television broadcasting
c. Transport of goods and passengers by any mode of transport, other than by rail
d. Restaurant
e. Manufacture or supply of a product in accordance with a customer's requirement or specification by using materials purchased from that customer's partner as defined in section 40A(2), but does not include the manufacture or supply of a product in accordance with a customer's requirements or specifications by using materials purchased from a person other than that customer.
TDS & 2019 Estimates
3. What is a Subcontractor according to Section 194C?
A "subcontractor" would mean whoever:
a. Who concludes a contract with the contractor to perform the work, or
b. For the provision of labour to perform all or part of the work undertaken by the contractor under a contract with any of the authorities or
c. For the supply, wholly or partially, of any work which the contractor has undertaken to supply to any of the authorities referred to in this section in terms of its contract.
4. What is Sub-contractor TDS?
Under the provisions of the Income Tax Act, any person (being an entrepreneur and not an individual or a Hindu Undivided Family) shall:
a. Responsible for payment of any amount to any resident
b. Where the contract is concluded with the subcontractor for the performance or the supply of labour for the performance of all or any part of the work undertaken by the contractor or for the supply of all or part of the work undertaken by the contractor,
i. At the time of credit of that sum to the subcontractor 's account or
ii . ii. Upon payment of this in cash or
And iii. Issuance of a check or draught or any other method, whichever is earlier
c. Deduct the amount equivalent to 1 per cent of the amount as income tax on the income therein comprised. The rate for transactions from 14 May 2020 to 31 March 2021 is 0.75 per cent.
5. Where is the Subcontractors Payment made, what Conditions must be satisfied?
a. Payment shall be made to a resident subcontractor, within the meaning of Section 6 of the Income Tax Act, 1961b. Payment shall be made by a resident contractor, not an individual or a HUF c. Payment shall be made for performing any work, including labour supply d. The amount of contract consideration in respect of which payment is made should be no less than Rs. 30,000 e. The amount should be credited or paid by the contractor in connexion with a contract concluded by him with the bodies specified
6. When do TDS require deduction under Section 194C?
The person in charge of paying to the resident contractor / subcontractor should deduct TDS,
a. Either at the time the payee credits that amount to the account or
b. Upon payment of this in cash or
c. By a check issue or any other mode whichever is earlier.
Where any sum is credited to any account, whether it is called a "Suspense account" or by any other name, such crediting shall be deemed to be credit of such income to the payee 's account in the account books of the person liable to pay that amount and the provisions of this section shall apply accordingly. Thus the tax must be deducted even if the amount payable to the resident contractor / subcontractor in his books is transferred to the payer's suspense account.
7. What is the TDS-rate?
Sl. Sl. No Nature of Payment TDS Rate provided PAN TDS rates are available from 14.05.2020 to 31.03.2021 TDS Rate if PAN is not available
1 Payment / Credit to individual resident or HUF 1 per cent 0.75 per cent 20 per cent
2 Payment / credit to a resident other than an individual / HUF 2% 1.5% 20%
3 Transporter payment / credit NIL NIL NIL 20 per cent
Note:- No addition of Surcharge, Education Cessation, and SHEC. Therefore TDS is deductible at basic rates.
8. What are Exceptions to TDS on Contractor Payment?
A. TDS reduction for composite contract
i. Where materials are supplied by the government, the question is whether deductions will be made in respect of gross payment to the contractor or net payment, i.e. gross payment minus deductions, if any,
ii . ii. Because of the materials supplied by the government, it will be necessary to decide in the light of the terms of the contract and the behaviour of the parties.
And iii. Where the contractor has undertaken to build a building or a dam and the government or other specified person has undertaken to supply all or any of the materials necessary for the work at the stipulated prices, the deduction shall be related to the gross payment without excluding any adjustments due to the cost of the materials.
IV. IV. Where the contractor has only undertaken to provide the labour for the work, the ownership of the materials supplied remaining with the government or another specified person at all times, the sum payable to the contractor in respect of the contract will only be the amount paid for the work or services and will therefore not include the price of the materials supplied by the government or other entities
Thus, the rate of TDS from payments made to any contractor by the government or other specified persons will be 2 per cent or 1 per cent of the gross payment or, as the case may be, the net payment, depending on the contract terms. The rate for transactions from 14 May 2020 until 31 March 2021 is 1.5 per cent or 0.75 per cent.
B. Deduction, if the party supplies the contractor with the material
i. No deduction is possible when delivering materials. Therefore no TDS is required to be produced. However, deductions are required when payment is made either in cash or in kind to contractor / subcontractor tax.
9. In what circumstances is it not deductible to TDS u / s 194C?
In the following cases no tax is deductible:
a. Where the sum payable or credited under any contract does not exceed Rs. 30,000, or b. Where the aggregate amount of such amounts credited or paid or likely to be credited or paid during the financial year does not exceed Rs. 1,00,000, TDS shall not be deducted under this section c. Individual or HUF tax not deductible if the payment or amount credited to the contractor is for personal use
i. No individual or HUF shall be liable to deduct income tax on the amount credited or paid to the contractor's account if that amount is credited or paid solely for the personal use of that individual or any HUF member.
ii . ii. No deduction shall be made from any amount credited or payable or likely to be credited or paid in the previous year to a contractor's account in the course of the plying, hiring or leasing of carriages of goods to the person who pays or credits the amount
10. 10. Time limit for the deposit of tax
a. Where the payment is made by the government or on behalf of it – the same day.
b. Where the payment is in any case other than the Government
i. If the amount is credited in March-on or before 30 April
ii . ii. In Other months – 7 days from the end of the month the deduction is made.
Note: It is the payer who is responsible for TDS.
11. 11. TDS Certificate Issuance
For payments other than wages, TDS certificates shall be issued on a quarterly basis in Form No.16A. According to Rule 31, every person responsible for deducting tax from payments other than wages shall issue a quarterly TDS certificate in Form No. 16A.
Quarter Date for Non-Government Deductor Date of deduction
April-June 30, August 15
July-September 30, November 15
October-30 January, 15 February
30 May-January to 30 May
As per CBDT Circular No. 1/2012, dated 9-4-2012, it is mandatory for all deducers to issue TDS certificates in Form No. 16A by generating the certificate through TIN's central system by downloading a unique TDS certificate number from the TIN website. These provisions shall apply in respect of all amounts deducted after or on 1-4-2012. The certificate thus issued can either be authenticated using digital signature or manual signature.
12. 12. Lower rate TDS
In accordance with Section 194C, where the AO is satisfied that the total income of the contractor or subcontractor justifies the deduction of income-tax at any lower rate or no deduction of income-tax, as the case may be, the AO shall, at the request of the contractor or subcontractor in that name, give it such certificate as is appropriate. The contractor or subcontractor may then provide the deductor with the lower rate or a nil TDS certificate.
13. 13. Need help Returning your TDS?
At our support no, you can contact and clear all your doubts concerning the related queries:
