According to the Section 194C of the Income Tax Act, any individual making a fee to a residential individual, who carries out 'work' as a contract between the 'specified individual' and the 'resident contractor,' is obliged and required to deduct TDS (Tax Deducted At Source).

The 'specified individual' as mentioned above means either of the following:
  • The Firm;
  • Co-operative Society;
  • The Trust;
  • Local Authority;
  • Certified Society;
  • The Company;
  • Corporation founded by the Central, State, (or) Provincial Act;
  • University established/incorporated by Central, State or Provincial Act;
  • Administration employed either to deal with and satisfy the requirement for the residence accommodation or planning, development or advancement of town, village, and cities;
  • The HUF or a person responsible for auditing under Sec. 44AB: Clause (a), or Clause (b) through the fiscal year just before the fiscal year in which the sum is credited or given to the Contractor.
  • Government of a foreign state /an international enterprise or any association/body established outside India;
Additionally, it is specified here that the term 'contract' includes 'sub-contract'.

Deciphering The Definition Of The Word 'Work' Under Section 194c:

The word 'work' comprises the following:
  • Catering;
  • Advertising;
  • Broadcasting and telecasting;
  • Conveyance of goods/travellers by any method of transport excluding railway;
  • Production/supplying a product based on the specification of buyers by utilising material acquired from the buyer. Nevertheless, it doesn't bear when the material is purchased from an unspecified person other than the buyer.

Rate Of TDS On Payment To Contractor Under Section 194c:

When prerequisites of section 194C of the Income Tax Act gets drawn, the Deductor is required to deduct TDS at the following rates:

Particulars Rate of TDS
Payment to an individual or HUF 1%
Payment to a person other than an individual or HUF 2%
Nevertheless, if someone fails to furnish the PAN, the Deductor would be required to deduct TDS at 20%, which is the maximum marginal rate.

List of Exception:

Here is the list of exceptions or cases in which TDS will not be deducted from the individual.
Pay close attention as this list of exceptions can help you with your deductions as per section 194C:
  1. The amount paid/credited to the Contractor in a single contract doesn't surpass Rs. 30,000/-
  2. The amount paid/credited to the Contractor involved in the vocation of hiring, employing, or leasing goods carriage. Where the Contractor doesn't possess over ten goods carriage (at any time) during the preceding year.
  3. The Contractor is obliged to provide the declaration with the PAN to the Deductor.
  4. The gross amount paid/credited during the financial year doesn't surpass Rs. 1,00,000/-
  5. The amount paid/credited to the Contractor by an individual or HUF for carrying out work for personal use.
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DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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