Section 194C of the Income Tax Act, 1961 in India deals with tax deduction at source (TDS) on payments made to contractors and subcontractors. This section applies to both individuals and businesses who are making payments to contractors or subcontractors for carrying out any work, including:
- Payments for carrying out any work in pursuance of a contract.
- Payments for hiring a contractor for carrying out any work on behalf of any individual, Hindu undivided family, or company.
Key Provisions of Section 194C:
- Applicability: This section applies when the total value of the contract or the aggregate of contracts exceeds INR 30,000 in a single payment or INR 1,00,000 in aggregate during the financial year.
- Rate of TDS: As per the current provisions, TDS under Section 194C is deducted at the rate of:
- 1% for payments made to an individual or Hindu Undivided Family (HUF).
- 2% for payments made to any other person or entity (like a company or partnership firm).
- Exclusions: Certain payments are not subject to TDS under Section 194C, such as payments for personal purposes, payments to government entities, etc.
- Threshold Limit: No TDS is required to be deducted if the total payment to the contractor during the financial year does not exceed INR 30,000.
- TDS Deduction: The person making the payment (i.e., the payer) is responsible for deducting TDS at the time of credit of such sum to the account of the payee or at the time of payment, whichever is earlier.
- TDS Payment and Filing: The TDS deducted under Section 194C must be deposited to the government’s account and the TDS return (Form 26Q) must be filed with the Income Tax Department within the prescribed due dates.
Compliance Requirements:
- Obtaining the contractor’s PAN (Permanent Account Number) and verifying its correctness.
- Deducting TDS at the applicable rate and depositing it to the government within the specified time frame.
- Issuing TDS certificates (Form 16A) to the contractor, reflecting the TDS details.
Non-compliance with the provisions of Section 194C can attract penalties and interest under the Income Tax Act. Therefore, it is essential for businesses and individuals to understand and adhere to the requirements of this section when making payments to contractors and subcontractors for carrying out any work.