Section 194C of the Income Tax Act, 1961 mandates the tax deducted at source (TDS) on payments to resident contractors or sub-contractors. Under this provision, individuals or entities making these payments must ensure TDS deductions to remain compliant and avoid penalties. Here’s everything you need to know about Section 194C, including applicability, rates, exceptions, and more.
A “person” in the context of Section 194C can refer to any individual, firm, trust, company, society, government, or any local or authorized governing body involved in a contract for services or supplies. Entities paying contractors for such services are required to deduct TDS.
Section 194C defines “work” as any tasks associated with:
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Entities deduct TDS under Section 194 C only when:
Note: TDS is deducted when the payment is credited, paid in cash, or through cheque, whichever is earlier.
Here are the standard TDS rates under Section 194 C:
If the contractor does not provide a valid PAN, the payer deducts TDS at 20%. However, the payer does not deduct TDS on payments to goods transport contractors who meet specific conditions.
Some scenarios exempt TDS under Section 194 C:
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TDS deductions are exempt in situations such as:
It must be deposited promptly as per the following timelines:
Payers must issue TDS certificates (Form 16A) to contractors quarterly on the following dates:
Section 194C of the Income Tax Act ensures transparency and accountability in contractor payments through timely TDS deductions. Understanding these rules allows both payers and contractors to maintain tax compliance and optimize tax-related benefits.
Any resident contractor or sub-contractor working with a specified individual or entity falls under Section 194C, provided they meet certain contract payment thresholds.
The TDS rate for individual contractors or HUF under Section 194C is 1%.
Yes, without a PAN, TDS must be deducted at 20% instead of the usual 1% or 2% rates.
No TDS deduction is needed if the payment is below Rs. 30,000 per contract or Rs. 1 lakh annually, or if the contractor provides a PAN declaration.
For government entities, TDS is due on the payment day itself. For others, TDS for March payments is due by April 30, and for other months, it’s due within one week of month-end.
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