Under the Indian Income Tax Act, the following provisions relate to the
Tax Deduction at Source from payments to Contractors and Subcontractors
under section 194C.
- Person responsible for paying
any sum for carrying any work to any resident
contractor should deduct tax at source.
- Tax
should be deducted at source only if the contract is between the
contractor and the following specified persons:
1. The Central Government or any State Government.
2. Anylocal authority.
3. Any corporation established by or under a Central, State or Provincial Act
4. A company
5. Any Co-operative Society.
6. Any authority, constituted in India
7. Any Society registered under the Societies Registration Act, 1960 or any
law corresponding to that Act in any part ofIndia
law corresponding to that Act in any part of
8. Any Trust.
9. Any University established by or under any Central, State or Provincial Act
or any institution declared to be a University under the University
Grants Commission Act.
or any institution declared to be a University under the University
Grants Commission Act.
10.Any firm.
11.Any individual or Hindu Undivided Family whose books are required to be
audited under section 44AB during the immediately preceding financial
year. [The turnover from business/profession exceeds the limits
specified u/s 44AB during the immediately preceding financial year].
audited under section 44AB during the immediately preceding financial
year. [The turnover from business/profession exceeds the limits
specified u/s 44AB during the immediately preceding financial year].
Note: Budget 2008 introduced the burden of
deduction of tax under this section to Association of Persons and Body
of Individuals also, whether they are incorporated or not.
deduction of tax under this section to Association of Persons and Body
of Individuals also, whether they are incorporated or not.
- Individual or HUF need not deduct tax if the contract is exclusively for personal
purposes.
- Income Tax should be deducted at the time of payment or credit to the account of the contractor whichever is earlier.
- Income Tax is to be deducted at source @ 1% on Advertising contracts and @2% on any other contracts on the amount paid/credited. In the case of sub-contracts, the main
contractor should deduct tax at source @1% on the amount paid/credited
to the subcontractor.
- Provisions of Section 194C are applicable only where the contract is either a “contract for carrying out any work” or a “contract for supply of labour for works contract”. Hence, these provisions are not applicable for payments made under the contract of sale of goods.
- For the purpose of this section, the following contracts are also
included in the scope of “Work”:
1. Advertising.
2. Broadcasting
and telecasting including production of programs for broadcasting and
telecasting.
and telecasting including production of programs for broadcasting and
telecasting.
3. Carriage
of goods and passengers by any mode of transport other than Railways.
of goods and passengers by any mode of transport other than Railways.
4. Catering.
- No deduction of tax at source shall be made under this section in the
following circumstances:
1. If the amount paid/payable or credited/likely to be credited to the
contractor/sub-contractor does not exceed Rs.20,000/-
in a single instance. However, the total of amounts paid or credited
during the financial year should not exceed Rs.50,000/-.
If the said amount exceeds Rs.50,000/-, then, the liability for payment
arises on the whole of amount paid or credited and not on the amount in
excess of Rs.50,000/-
contractor/sub-contractor does not exceed Rs.20,000/-
in a single instance. However, the total of amounts paid or credited
during the financial year should not exceed Rs.50,000/-.
If the said amount exceeds Rs.50,000/-, then, the liability for payment
arises on the whole of amount paid or credited and not on the amount in
excess of Rs.50,000/-
2. In the case of a sub-contractor who is a resident individual and who owns
not more than two goods carriages during the previous year, no tax
shall be deducted at source during the course of business of plying,
hiring or leasing goods carriages if he provides a declaration to the
person responsible for payment to that effect in the prescribed form.
[Form 15-I]
not more than two goods carriages during the previous year, no tax
shall be deducted at source during the course of business of plying,
hiring or leasing goods carriages if he provides a declaration to the
person responsible for payment to that effect in the prescribed form.
[Form 15-I]
