Payment to contractors
Payment to contractors
If you are a person who is responsible to pay money to a resident contractor for the services he has rendered to you... Read this article to find out how you can discharge your responsibility in regards to TDS as per the provisions of section 194C of the Income Tax Act.
The provisions of TDS are contained in section 194C of the Act. I have categorised this section into seven questions, the answers of which will help you understand this section in no time and without any complications.
So, who is a contractor?
A contractor is a person who carries out any work for you. Work like construction, or transportation of goods, etc…
While making payment to such contractor, am i required to deduct tax??
You are the deductor. It means it is your responsibility to deduct tax before making payment. After the deduction, you shall intimate about the deduction to government by filing a TDS return.
When should the TDS be deducted?
TDS should be deducted at the time of credit or payment, whichever is earlier.
What what shall be rate….20%?? 10%?? 2%??? 1%
Guess….
1% and in some case, 2%....
1% if the payment is made to an Individual or HUF
2% if the payment to any other person
At which amount is Tax Deductible?
On the amount payable to the contractor.
If it is a case of works contract, then, deduction of tax depends upon value of material shown in the invoice. If invoice shows material amount separately, TDS is only deducted in the amount of labour charges and . If the amount of materials is not mentioned separately, the whole amount in the invoice is liable to TDS.
Are there any persons exempted from the provisions of this section?
You, as an individual or an HUF, are not liable to deduct TDS if you have used the services of the contractor for personal use
You are not liable to deduct TDS if the invoice amount doesn't exceed Rs. 30,000. But also keep in mind that during a year, the aggregate sums paid to such contractor should not exceed Rs. 1,00,000.
You are not liable to deduct TDS in case you are making payment to a contractor who leases goods carriage. BUT keep in mind that such person should have more than 10 such goods carriages and has furnished his PAN to the contractee.
Is there a specific case where this section wont apply?
This section doesn't apply to a contractor who manufactures products as per the directions of the customer and uses materials NOT provided by such customer.
If you have any queries related to this article, let me know
Chiranjibi Chapagain
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