Section 194C – TDS on payment to contractor or subcontractor

Meaning and applicability of Section 194C

Section 194C deals with the provisions for tax deduction at source at the time of payment to contractors/subcontractors.

This section says that any person who pays money to the resident contractor (or subcontractor) for carrying out any work (including the supply of labor) is required to deduct tax on such payment. The above condition also requires the existence of a contract between contractor and contractee.

The term “Any Work” includes the following:

• Advertising
• Broadcasting
• Carriage of goods and passengers using any mode of transport (but not railways)
• Catering
• Manufacturing or supply of a product as per the specification of a customer by using the material purchased from such customer. But if such material is purchased from anyone other than the customer for whom work is to be done then such transaction is not covered here.

Who is liable to deduct TDS (Deductor)?

• Central government or state government
• Local authority
• Corporation
• Company
• Co operative society
• Trust
• University
• Registered Society
• Firm
• Individual/HUF/AOP/BOI required to get accounts audited u/s 44AB

Who is the contractor or subcontractor?

Contractor means any person who enters into a contract with above specified persons to conduct any form of work (including supply of manpower).

Subcontractor means who enters into a contract with the contractor to either complete the whole or part of the work for which contract has been made.

What is the rate at which TDS to be deducted?

Any limit upto which No TDS is required to be deducted?

Example

Value on which TDS to be deducted in case of Composite Work

In a situation where material is separately provided by the customer, in such case TDS is to be deducted on:

1. Invoice value excluding price of material (if it is separately indicated)
2. Total invoice value, when the price of material is not indicated separately. 

When TDS is to be deducted?

Earlier of:

• Credit to the account of receiver
• Actual payment

What is the time limit to Deposit TDS?

What is the time limit to file TDS return?

Any consequences of non compliance of section 194C?

• Levy of interest: If TDS is not deducted at all (1% per month or part of the month) or deducted but not deposited then interest is required to be paid on such amount (% per month or part of the month). 

• Disallowance of expenses: Person is not eligible to claim deduction of expenses under head PGBP. Among such expenses 30% of the amount shall be disallowed. However, if TDS is deposited in subsequent years then such disallowed expense shall be allowed in the year in which TDS is deposited. 

Is there any relief provided by the government on TDS rate due to COVID 19 under this section?

Yes, the government has reduced TDS rate u/s 194C for the period starting from 14th May 2020 to 31st March 2021 by 25%