Section 194C of the Income Tax Act

The Income Tax Act of India, 1961, has numerous sections that outline how and when one should levy or deduct tax. Adherence to these guidelines and provisions is crucial, as non-compliance can attract penalties. Among the many sections is Section 194C, which has provisions related to TDS deduction by the payee for work carried out by a contractor. 

 

To learn more about Section 194C of the Income Tax Act, read on.

Sec 194C states the rules of TDS deduction when any specified person pays a resident contractor for work carried out by them, including labour. 

 

For the purpose of deduction under this section, a specified person includes the following:

• Central/ State Government

• Local authority

• A corporation established under the Provincial, State, or Central Act

• Company or co-operative society

• A registered society

• University established under the Provincial, State, or Central Act

• Institution declared as a university as per University Grants Commission Act, 1956

• Any trust or firm

 

This also includes any entity constituted in the country for dealing in housing accommodation needs or for developing, improving, or planning villages or cities. 

To deduct TDS under Section 194C, the definition of work for which a payee can carry out the deduction includes:

• Carriage of passenger/ goods through transportation modes other than railways

• Broadcasting and telecasting, including the production of programs  

• Advertising

• Catering

• Supply or manufacturing of product per customer requisites where the contractor purchased the material from a customer. But it is not included if the contractor purchased the material from a someone other than the customer

To deduct TDS under Section 194C of the Income Tax Act, the contractor is a resident individual who agrees to and carries out the work for any specified individual as per the terms. 

 

A sub-contractor is a resident individual who gets into an agreement with the resident contractor to: 

• Carry out the entire or part of the work agreed upon by the contractor

• Supply manpower to the contractor for the entire or part of the work

Deduction under Section 194C is applicable under two conditions – the total amount of a single transaction and the aggregate amount paid by any specified person to a contractor in a financial year.

 

Under Section 194C, the limit for the first condition is ₹30,000. For the second condition, the total amount paid in a financial year should not exceed ₹75,000. 

 

Given below is an example of when TDS under sec 194C is applicable:

It is important to note that sec 194C is not applicable in cases mentioned below:

• If the single or aggregate amount does not exceed the limit

• When the work done for individuals or HUFs is of personal nature

• If the payment is to a non-resident contractor or sub-contractor

• When the contractor submits a declaration with their PAN

• When the contractor is in the business of plying, hiring, or leading goods carriage, and, in the previous year, owned fewer than 10 good carriages

Under Section 194C, TDS rates depend on to whom the payment is given. Here is a breakdown of the TDS rates:

• If the payment is to individuals or HUFs, the TDS deduction is at 1%

• If the payment is to entities other than individuals or HUFs, TDS deduction is at 2%

• If the payment is to a payee who has not mentioned PAN, the TDS deduction is at 20%

While deducting the TDS is crucial, it is equally essential to ensure that the deducted TDS is deposited on time. A timely deposit can help you avoid any penalties. 

 

Given below is a table that depicts the time limit within which you should deposit the deducted TDS:

As mentioned above, non-compliance with Section 194C of the Income Tax Act can attract fines. The penalty for non-compliance is as follows:

• Interest will be levied if TDS is not deducted or deducted but not deposited on time

• No deduction claims for expenses under PGBP income for an amount equal to 30% of the payment

 

Now that you know Section 194C rates, and other provisions, ensure that you adhere to them to avoid the penalties. File your Income Tax returns and TDS on time to avoid late penalties.