TDS Deduction on Contractor Payments! Explained

In this blog, we will learn about Section 194C. This section deals with the Tax Deducted at Source on those payments that are made to contractors or subcontractors.

A Contractor

The guidelines of Section 194C regarding the TDS deduction on the payments that are made to the contractors or subcontractors can only be levied if the contract is a work contract or the contract is a contract for supply of labour for word contract. Therefore, these guidelines are not applied to the payments that are made under the sale of goods contract. As per Section 194C, the work is inclusive of advertising, broadcasting, carriage of goods and passengers by any transportation mode except for railways and catering.

After October 1, 2009, the definition of the word ‘work’ also includes the manufacturing and supply of goods as per the need or specification of a customer by using the materials that he/she bought. But, the manufacture and supply of products as per the need of the customer but with those materials that were bought by someone else, is not included.

Who should deduct TDS?

All the individuals and entities who have to make payments to any resident contractor for any sort of work as per the contract have to deduct the TDS. The individuals and entities who have to deduct TDS on contractor payments are as follows:

1. The central or state government
2. Any local authority
3. A corporation that is established either by or under the Central, state or provisional act.
4. Any company
5. Any cooperative society
6. Any authority established in order to meet the needs of housing accommodation or to plan development of cities, towns or villages.
7. Any societies that are registered under the Societies Registration Act, 1860.
8. Any trust made for charitable or religious purposes
9. Any university
10. Any government of a foreign state or any association or body constituted outside the Indian borders.
11. A partnership firm
12. Any AOP or BOI whose account books need to be audited for the previous financial year.
13. Any individual or an HUF or an AOP/BOI which have been incorporated or not, and the total income is more than the specified limit for the financial year preceding the financial year in which the payment was made to the contractor.

When to deduct TDS?

TDS needs to be deducted either at the time of crediting the sum to the payee’s account or at the time of making the payment either in cash or in cheque or by any other payment mode. Due to this, any sum that has been credited to any of the accounts either in  the name of a suspense account or any other name in the payer’s account books will be deemed as a credit of such an income to the payee’s account.

Rate of TDS deduction for Contractors

The rates for TDS deduction till the end of the FY 2017-18 are:

1. 1% for those payments that are made or credited to an individual or an HUF.
2. 2% for those payments that are made or credited to any other entity.
3. 20% iif the PAN has not been mentioned in any of the above cases.

Contracts for which TDS is Deducted

 TDS needs to be deducted for work contracts. The work contracts include the following:

1. Advertising services
2. Broadcasting services
3. Telecasting services
4. Carriage of goods and passengers by any mode of transportation other than railways
5. Catering services
6. Manufacture and supply of goods to the customer by utilising the materials provided by the customer
7. Supply of labour

Exemptions for Contractors

TDS on contractor payments will be deducted in the conditions listed below:

1. Small Payments:
2. Transport Operators:
3. Personal Purposes:

TDS Payment

The due date for deducting the TDS on contractor payments are as follows:

• If the deductor is government, then the tax will have to be paid on the day of deduction whether the challan has been generated or not within 7 days from the end of that month in which tax was deducted.
• If the deductor is not the government, then the payment must be made in either March or before April 30 or within seven days from the month end of that month in which tax has been deducted.

Due Date to file TDS Returns

• The specified last date for the quarter April-June is July 31.
• The specified last date for the quarter July-September is October 31.
• The specified last date for the quarter October-December is January 31.
• The specified last date for the quarter January-March is May 31.

Due Date to Issue TDS Certificate

It is necessary to ensure the adequate and timely issuing of the certificate except for salaries. The issuing of certificates must be done within the dates listed below:

For Non-Government Deductor:

• The specified last date for issuing the certificates for the quarter April-June is July 30.
• The specified last date for issuing the certificates for the quarter July-September is October 30.
• The specified last date for issuing the certificates for the quarter October-December is January 30.
• The specified last date for issuing the certificates for the quarter January-March is May 30.

For Government Deductor:

• The specified last date for issuing the certificates for the quarter April-June is August 15.
• The specified last date for issuing the certificates for the quarter July-September is November 15.
• The specified last date for issuing the certificates for the quarter October-December is February 15.
• The specified last date for issuing the certificates for the quarter January-March is May 30.

Conclusion

In this blog, we discussed the deduction of TDS on contractor payments. We also learnt about contractors, who has to deduct TDS, time to deduct TDS, Rate of TDS for contractors, the contractors for which it is necessary to deduct TDS, exemptions for contractors, payments of TDS, due dates of filing TDS returns and issuing of TDS Certificate.