As per the provisions of the Income Tax Act, 1961 any person (who is either being a contractor and not being an individual or a Hindu Undivided Family),

  • Is responsible for paying any sum to any resident
  • in accordance with a contract with the sub-contractor for carrying out, or for the supply of labour for carrying out, either the whole or any part of the work that is undertaken by the contractor or for supplying either wholly or partly any labour which the contractor has however undertaken to supply shall,
    • at the time of credit of such sum to the account of the sub-contractor or
    • either at the time of payment thereof in cash or
    • either by issue of a cheque or any draft or by any other mode, whichever is earlier,
  • deduct an amount which is equal to 1% of the sum as income-tax on any  income which is comprised therein.

The conditions that are thus required to be fulfilled for payment to any contractor are that :

The Payment that is being  made to a sub-contractor who is a resident within the meaning of Section 6 of the Income Tax Act, 1961 makes the Payment who is a resident contractor and is not being an individual or an HUF and thus the payment is made in order to carry out any work, including the supply of labour. However The amount of consideration of the contract which is  in respect to which the payment is made should not be less than Rs.30,000. And that the sum should either  be credited or be  paid by the contractor which is  in respect of a contract that is undertaken by him with the specified bodies.

TDS under Section 194C need is always  deducted when the person who is  responsible for making any kind of  payment to a  resident contractor/sub-contractor should deduct TDS, either at the time of crediting such a  sum to the account to the payee or either at the time of payment thereof in cash or either by  the issue of a cheque or by any other mode, whichever is earlier. Also , where any sum is  credited to any account, whether it is called  as a “Suspense account” or by any other name, in the books of account of the person who Is liable to pay such amount, such crediting shall however be deemed to be credit of such an income to the account of the payee and also  the provisions of this section shall thus apply  accordingly. Thus, tax is required  to be deducted even if the amount that is  payable to resident contractor/subcontractor is transferred to the suspense account by the payer in his books.

However the rate of TDS which is payable depends upon the nature of payment and it also varies on that fact that PAN is available or not .

Nature of PaymentTDS Rate if PAN is  availableTDS Rate if PAN is  not available
Payment / Credit to any  resident individual or HUF1%20%
Payment/Credit to any resident person other than the individual / HUF2%20%
Payment/ credit to the TransportersNIL20%

However where the payment is made by or either on behalf of the Government then the payment is to be made on the same day.

And in the cases where the payment is made in any other case than the government , then If the amount is credited in the month of March the payment is to be made On or before April 30th and in Other months the payment is to be made Within 7 days from the end of the month in which the deduction is thus  made.

Also TDS u/s 194C is not deductible when

  • The sum is either credited or is  paid in pursuance of any contract, then  the consideration for which does not exceed Rs.30,000, or where the aggregate of the amounts of such sums is either credited or is  paid or it is  likely to be credited or to be  paid during the financial year  which does not exceeds Rs.1,00,000, then the person who is responsible for paying such sums will not deduct TDS under this section.
  • An Individual or HUF is not required to deduct tax if the payment or the amount that is  credited to a contractor is for personal use.
  • Also , No individual or HUF shall be liable to deduct any income-tax on the sum that is credited or is  paid to the account of the contractor where such sum is credited or is paid exclusively for any personal purpose of such individual or for  any member of HUF.
  • Also, no deduction shall be made from any of the sum that is credited or is paid or is likely to be credited or is  paid during the  previous year to the account of a contractor during the course of any business of plying, hiring or of  leasing the goods carriages, on furnishing of his PAN, to the person who is  paying or is  crediting such amount.
TDS on Payment to Contractors
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