Find out all about TDS on transportation charges under Section 194C of the Income Tax Act. Check applicable rates, exemptions, compliance needs, and penalties.
In India, businesses often hire contractors or transport operators for moving goods and services. To ensure tax is collected at the source of income, the Income Tax Act includes several provisions for Tax Deducted at Source (TDS). One such important provision is Section 194C, which applies to payments made to contractors, including transporters.
If you're a business or professional making transport payments, understanding the applicability and rates of TDS on transportation charges under this section is essential for tax compliance.
Section 194C of the Income Tax Act, 1961, outlines rules for TDS on payments made to a resident contractor or subcontractor. It is applicable when a person hires a contractor for carrying out any work, including supply of labour or transportation services.
Key highlights of Section 194C
Applies to payments made by specified persons (like individuals, HUFs, companies, etc.) to contractors/sub-contractors
Covers work contracts, labour supply, and transport contracts
TDS is deducted either at the time of credit or payment, whichever is earlier
Threshold limits and rates vary based on the nature of the payee and payment
TDS under Section 194C is applicable on transportation charges under the following conditions:
The payment is made to a resident transport contractor for carriage of goods or passengers.
If the single payment exceeds ₹30,000, or the total annual payments exceed ₹1,00,000.
If the transporter has not provided a valid PAN or declaration of exemption.
When transport service is part of a broader contract that includes supply of goods or labour, and the transport cost is not billed separately.
For example, if a company pays ₹45,000 to a logistics company for transporting their goods from Mumbai to Delhi, they will have to pay TDS under Section 194C. It's important to note that TDS applies only when the abovementioned thresholds are crossed.
Moreover, TDS doesn't apply to personal transportation services. For instance, if an individual hires a vehicle for personal use, and not business needs, no TDS is applicable regardless of the amount paid.
The TDS rates for transportation charges under Section 194C vary based on the following scenarios:
Payment Type |
TDS Rate |
Payment is made to an individual or a Hindu Undivided Family (HUF) |
1% |
Payment is made to a firm, company, or entity (excluding individuals/HUFs) |
2% |
If PAN is not provided by the transporter (as per Section 206AA) |
20% |
Example 1:
A company pays ₹60,000 to an individual truck owner for goods transportation. If no exemption is claimed, TDS @1% = ₹600 will be deducted.
Example 2:
A company pays ₹1,50,000 to a transport company in three instalments. Since the annual threshold of ₹1,00,000 is crossed, TDS @2% = ₹3,000 will be deducted.
To ease compliance for small transporters, Section 194C(6) provides an exemption from TDS deduction if, subject to certain conditions:
If the transporter owns not more than 10 goods carriages during the year
A self-declaration (under Rule 31A) must be submitted stating this fact
The transporter must also provide a valid PAN
The declaration must be preserved by the deductor as proof of exemption. Remember that this exemption applies only to payments received for plying, hiring, or leasing of goods carriages owned by the transporter. If the transporter hires vehicles from others, the exemption does not apply.
Example:
You hire a local truck operator who owns 3 trucks and provides a valid PAN and declaration. In this case, no TDS will be deducted, even if the payment is ₹50,000.
This provision helps small transport operators avoid TDS deduction, reducing their compliance burden.
When to Deduct TDS:
TDS under Section 194C must be deducted at the time of:
Crediting the payment to the contractor’s account, or
Actual payment in cash, cheque, or any other mode,
whichever is earlier.
When to Deposit TDS:
After deduction, the payer must deposit the TDS amount with the government within the prescribed timelines:
Nature of Payer/Deductor |
Time Limit |
Government entity |
Within the same day |
Non-government entity |
|
Modes of Payment:
Use Challan No. ITNS 281 for depositing TDS
TDS can be paid online via the TIN NSDL portal
Once TDS is deducted and paid, the deductor must comply with certain filing requirements:
Obtain the PAN of the contractor to avoid higher TDS rates
Deduct TDS at the correct rate based on the contractor’s status
Deposit the deducted TDS within the stipulated time
File quarterly TDS returns (Form 26Q) providing details of TDS deducted and deposited
Issue TDS certificates (Form 16A) to contractors within 15 days of filing the TDS return
Maintain records of declarations submitted by small transporters claiming exemption
Non-filing or incorrect filing of TDS may attract penalties or late fees.
Failure to deduct or deposit TDS under Section 194C can lead to serious consequences:
Disallowance of expense: 30% of the transport payment may be disallowed as an expense under Section 40(a)(ia)
Interest on late deduction or deposit:
1% per month for late deduction
1.5% per month for late deposit
Late filing fees: ₹200 per day under Section 234E (subject to the TDS amount)
Penalty: Up to ₹1 Lakh under Section 271H for failure to file TDS returns
Example:
If you deducted ₹2,000 as TDS but filed the return 20 days late, your late fee will be ₹4,000 (20 × ₹200), subject to the actual TDS amount.
Below is a table showing quarterly due dates for filing quarterly TDS returns via Form 26Q:
Quarter |
Period Covered |
TDS Return Due Date |
Q1 |
1st April to 30th June |
31st July |
Q2 |
1st July to 30th September |
31st October |
Q3 |
1st October to 31st December |
31st January |
Q4 |
1st January to 31st March |
31st May |
FAQs
When is one exempt from TDS on transportation charges?
Under Section 194C (6), no TDS is applicable on freight charges if your business owns 10 or fewer vehicles and provides services to a contractual client. However, your business must be involved in plying, hiring, or leasing goods carriages to be eligible for this exemption.
Am I eligible for tax exemptions on freight charges if I provide contractual services without owning any goods carriages?
Section 194C (6) exempts the contractor from tax on freight charges if they own 10 or fewer goods carriages. If a contractor rents goods carriages from another contractor for services agreed upon with a client, freight charges are tax-deductible.
What would my time limit be to submit the tax deductions?
For non-government entities or individuals, tax deductions should be submitted by April 30th. However, payments from April to February require tax submission by the 7th of the following month.
What is the current TDS rate for freight charges?
Individuals or Hindu Undivided Families (HUFs) will be subject to 1% TDS if the amount exceeds the threshold. For other categories, the rate will be 2%. However, if the individual or entity does not possess a PAN card, they will be charged 20% TDS.
Will TDS on freight charges still be applicable if the payment is made through UPI?
No matter the payment method, a payment of this nature is liable to be deducted with a TDS percentage.
What is the TDS limit for job work?
The following instances will incur TDS deductions:
Payments that surpass ₹30,000 in a single transaction
Aggregate payments exceeding ₹1 Lakh in a financial year
Is TDS applicable to expenses incurred for sales promotion?
Yes. TDS is deductible on expenses related to sales promotions, whether as a professional services payment or under a contract.
Should TDS under 194C be deducted on the gross amount or the net amount with GST?
TDS must be deducted on the invoice value, excluding additional taxes such as GST.
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