What is 194c

Section 194C specifies that any person who is obligated to pay any payment to the resident contractor for carrying out any work.
 

Let's dive deep to understand what 194C is.

What is 194c of the Income Tax Act?

Section 194c of the Income Tax Act applies to all individuals, businesses, and organisations paying contractors, sub-contractors, or professionals. Section 194C TDS provision ensures that the government receives its share of taxes from the income earned by contractors.

Here are some key points about Section 194C.
●    Any person responsible for paying a resident contractor or sub-contractor for work or services must deduct TDS.
●    The TDS rate under Section 194C is 1% for payments made to resident contractors and sub-contractors.
●    If the payment to a resident contractor exceeds Rs. 1 crore in a financial year, the TDS rate is increased to 2%.
●    For payments made to non-resident contractors, the TDS rate is 2%.
●    Section 194C TDS should be deducted from the net amount excluding GST.
●    If the contractor or subcontractor is an individual or a Hindu Undivided Family (HUF), TDS should be deducted under Section 194J for technical or professional services.
●    TDS should be deposited to the government within the prescribed time limit to avoid penalties and interest.

Compliance with Section 194C helps avoid legal issues and penalties. Looking closely at and understanding all the details regarding TDS deductions under Section 194C act.
 

What Constitutes as Work Under Section 194C?

“Work” under Section 194C has been defined broadly and includes various activities. Here are some examples of what constitutes work under Section 194C.

●    Advertising: Payments made to advertising agencies for creating and publishing advertisements fall under Section 194C.
●    Broadcasting: Payments made to television and radio channels for broadcasting advertisements or programs are subject to TDS under Section 194C.
●    Transport: Payments made to transporters for transporting goods or passengers qualify under this section.
●    Catering: Payments made to caterers for providing food and beverages at events such as weddings, parties, or conferences are subject to TDS under Section 194C.
●    Telecommunication: Payments made to telecommunication service providers for providing communication services such as telephone, internet, or broadband services are subject to this tax.
●    Contract manufacturing: Payments made to contract manufacturers for manufacturing goods on behalf of the payer are subject to TDS under Section 194C.

It is significant to remember that payments paid for professional fees, technical services, or consulting services are also covered under the 194C income tax act. This area covers professionals, including doctors, lawyers, architects, and engineers.

Provisions for TDS Deductions Under Section 194C

The provisions under this section lay down the TDS rates, threshold limit, and exemptions applicable to different types of payments. 

Here are the following provisions for TDS deductions under Section 194C:

●    Threshold limit

The threshold limit for the deduction of TDS under Section 194C is Rs. 30,000 per contract or Rs. 1,00,000 in aggregate in a financial year. If the total amount paid or credited during a financial year to a contractor or sub-contractor during a financial year does not exceed the limit, then no TDS must be deducted.

However, if the payment exceeds the threshold limit, TDS must be deducted at the applicable rate.

●    TDS rates

The rate of TDS deduction under Section 194C varies depending on the type of payment made. For example, the TDS rate for payments made to a contractor or sub-contractor for work related to advertising, broadcasting, or telecasting is 1%, while the TDS rate for payments made to a contractor or sub-contractor for work related to transport is 2%. 

Note: If the contractor or sub-contractor does not have a PAN or Aadhaar, TDS will be deducted at a higher rate of 20%.

●    Exemptions

Certain contract work or professional services payments are exempt from TDS under Section 194C. For example, payments made to the government, local authorities, or statutory corporations are exempt from TDS under this section. However, obtaining the necessary documentary proof for such exemptions is important.

●    TAN requirement
Individuals or businesses paying contractors or sub-contractors must obtain a Tax Deduction Account Number (TAN). TAN is a 10-digit alphanumeric code that the Income Tax Department issues. TAN is mandatory for all TDS deductors and is used to identify the deductor in TDS returns.
●    TDS returns
Compliance requirements under Section 194C include filing TDS returns every quarter. The TDS returns must be filed in Form 26Q, containing details of TDS deductions made during the quarter. The TDS returns must be filed within the prescribed due date, failing which penalties and legal consequences can arise.
 

Deposit of TDS under Section 194C – Time Limit

The deposit of TDS (Tax Deducted at Source) under the 194C Act has a specific time limit. The following table provides an overview of the TDS deposit time limit for different types of deductors.

Failing to comply with the time limit for depositing TDS under Section 194C can quickly turn into a financial nightmare. Not only will it attract interest and penalties, but it can also lead to legal issues that could have been easily avoided. 

What is TDS on Contractor Rate Under Section 194C? 

TDS on Contractor Rate Under Section 194C refers to the tax deducted at source on payments made to contractors for contract work or professional services. 

For contracts related to advertising, broadcasting, and carriage of goods, the TDS rate is 1%. For work-related contracts other than advertising, broadcasting, and carriage of goods, the TDS rate is 2%. However, if the contractor is a company, the TDS rate is 2% for all types of contracts.

Exceptions to TDS Under Section 194C

The following are the exceptions to TDS under Section 194C:
●    Payments made to individuals and HUFs for personal use.
●    Payments made to the government or local authority.
●    Payments made for the purchase of goods.
●    Payments to a contractor who has furnished a valid declaration under Form 15G/15H.
●    Payments made to non-resident contractors who do not have a permanent establishment in India.
 

When is TDS Not Deducted Under Section 194C?

TDS is not deducted under Section 194C in the following situations.

●    If the total payment made to the contractor does not exceed Rs. 30,000 in a financial year.
●    If the payment is paid to a person or a HUF for personal use.
●    If the payment is made to the government or local authority.
●    If the payment is made for the purchase of goods.
 

TDS Certificate – Date of Issuance

The table below shows the date of issuance of TDS certificates under Section 194C:

How to calculate TDS under section 194C?

To calculate TDS under Section 194C, multiply the payment made to the contractor by the TDS rate applicable to the work's nature and the contractor's status. The TDS amount should be rounded off to the nearest rupee. The resulting amount is the TDS to be deducted and deposited with the government within the prescribed time limit.

How to calculate TDS in case of composite work u/s 194C?

In the case of composite work under Section 194C, where both goods and services are supplied, the TDS is calculated on the total payment made, including both goods and services. The TDS rate is determined based on the nature of the work, as prescribed under Section 194C. The value of goods and services supplied separately cannot be used for calculating TDS.

Some Special Considerations by Government on 194C Applicability

There are certain special considerations by the government regarding the applicability of Section 194C. For contracts entered into by the government, the TDS rate under Section 194C is 2%. 

In addition, the government may issue a certificate of non-deduction of TDS if the contractor is a resident and the contract value does not exceed Rs. 1 crore. The government may also issue a lower TDS certificate if the contractor is eligible and applies for it. The government may also issue a lower TDS certificate if the contractor is eligible and applies for it.

Furthermore, the government has exempted certain payments made to contractors from the applicability of Section 194C, such as payments made to transporters for the carriage of goods. It is important to know these special considerations to ensure compliance with the TDS provisions under Section 194C.
 

When is the TDS Statement issued, and by whom u/s 194C?

The TDS statement under Section 194C is issued quarterly by the person responsible for deducting and depositing the TDS amount. The statement should be filed in Form 26Q within the due date specified by the Income Tax Department.

What are the consequences of non-compliance with section 19C?

Non-compliance with Section 194C can result in consequences such as interest, penalties, and prosecution. Failure to deduct or deposit TDS within the prescribed time limit can attract the interest of 1% per month or part thereof and penalties ranging from Rs. 10,000 to Rs. 1 lakh.