TDS on Contracts under section 194C of Income Tax Act, 1961

Q.1 Who is responsible to deduct tax u/s 194C?
A.1. Any person responsible for paying any sum to any resident contractor for carrying out any work (including supply of labour for carrying out any work) under a contract in pursuance of a contract between contractor and person specified, shall deduct in context at the time of such payment thereof in cash of by issue of a cheque or draft or by any other mode or its credit to contractor’s account or any other account, by whatever name called, whichever happens earlier. Specified person are referred in explanation to section 194C, as under:-
(a) the Central or State Government; or
(b) any local authority; or
(c) any corporation established by or under a Central, State or Provisional Act; or
(d) any company; or
(e) any co-operative society; or
(f) any authority constituted in India by or under any law, engaged either for the purpose of dealing with the satisfying the needs for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages or for both (e.g. CIDCO, HUDCO, etc.] ; or
(g) any society registered under the Societies Registration Act, 1860 or under any such corresponding law; or
(h) any trust; or
(i) any university or deemed university; or
(j) any government of a foreign state or foreign enterprise or any association or body established outside India; or
(k) any firm;
(l) any person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, whether incorporated or not other than those falling under any of the preceding clauses, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor.
W.e.f. 1-10-2009 as per newly inserted section 194C(6), no deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, on furnishing of his Permanent Account Number, to the person paying or crediting such sum.
Q.2. At what rate TDS has to be deducted u/s 194C ?
A.2 (a) 1 % where the payment is being made or credit is given to an individual or a HUF.
(b) 2% where the payment is being made or credit is to be given to any other entity.
W.e.f. 1-10-209, the nil rate will be applicable if the transporter quotes his PAN. The rate of TDS will be 20% in all the above cases, if PAN is not quoted by the deductee on or after 1-4-2010.
No surcharge, education cess and SHEC shall be added. Hence, TDS shall be deductible at basic rates.

Q.3. What is the meaning of work for the purpose of section 194C?

A.3. Meaning of work for the purpose of section is contained in clause (iv) of Explanation (iv) to section 194C(7) “Work” shall include‑

(a) Advertising;

(b) Broadcasting and telecasting including production of programmes for such broadcasting or telecasting;

(c) carriage of goods or passengers by any mode of transport other than by railways;

(d) catering;

(e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer.

Q.4. Whether contract for Sale shall also be covered by TDS u/s 194C?

A.4. No, the provisions of S. 194C shall not apply to contract for sale, it has been provided that “work” shall not include manufacturing or supply a product according to the requirement or specification of a customer by using raw material purchased from a person other than such customer as such a contract is a contract for `sale’, please refer Circular : No. 681, dated 8-3-1994.

Purchase of advertisement material from a person without supplying any material used in preparation of said material shall be a contract for sale. Please refer Dy. CIT v. Eastern Medikit Ltd. * [2012] 135 ITD 461 (ITAT-Delhi)

Q.5. Whether Individuals and HUF are laible to deduct tax if the payment made to a contractor is for personal use?

A.5. Section 194C(4) provides that no individual or a Hindu undivided family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family.

Q.6. Under what circumstances TDS u/s 194C is not deductible?

A.6. In the following cases tax is not required to be deducted at source:

A) Where single payment does not exceed Rs. 30,000 or aggregate payment does not exceed Rs. 1,00,000 [First proviso to Sec. 194C(3)]: No deduction shall be made from the amount of any sum credited or paid or is likely to be credited or paid to the account of or to the contractor or sub-contractor, if such sum does not exceed Rs. 30,000.

Further, where the aggregate of the amounts of such sums credited or paid which is likely to be credited or paid during the financial year exceeds Rs. 1,00,000 (Rs. 50,000 upto 30-06-2010) and (Rs.75000 upto 01.06.2016) , the person responsible for paying such sums shall be liable to deduct income-tax under this section; or,

the tax will be required to be deducted at source where the amount credited or paid to a contractor or sub-contractor exceeds Rs. 30,000 at one time or Rs. 1,00,000 in the aggregate during the financial year in spite of the fact that separate contracts are entered into with that person.

B) No tax is to be deducted at source if the transporter provides Permanent Account Number: e.f. 1-10-2009 as per newly inserted Sec. 194C(6), no deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, or furnishing of his Permanent Account Number to the person paying or crediting such sum.

The person responsible for paying or crediting any sum to the person referred to in Sec. 194C(6) shall furnish to the prescribed income-tax authority or the person authorised by it such particulars, in such form and within such time as may be prescribed. [Sec. 194C(7)].

C) In case, where payee applied in form 13 to AO for non deduction, being his taxable income including rent below taxable limit, and has obtained certificate thereof – As per Sec. 197, any person to whom the amount is payable may make an application in Form No. 13 to the Assessing Officer and obtain such certificate from him, as may be appropriate, authorizing the payer not to deduct tax or to deduct tax at a lower rate. As per Sec. 206AA(4), w.e.f. 1-4-201 0, no certificate under sec. 197 for deduction of tax at Nil rate or lower rate shall be granted, unless the application made under that section contains the Permanent Account Number of the applicant.

Q.7. Are Individuals and HUF also covered by the provisions of section 194C for deduction of tax on payments to contractors?

A.7. As per proviso to section 194C(2) individuals and HUF whose total sales/turnover/receipts from the business/profession carried on by him in the immediately preceding financial year exceeded the monetary limit specified under section 44AB(a) or (b) (i.e. it exceed Rs. 1,00,00,000 / 25,00,000, as the case may be), are also required to deduct tax at source.

Q.8. Whether provision of S. 194C shall also apply to hiring or renting of equipment?

A.8. The provisions of section 194C would not apply in relation to payments made for hiring or renting of equipments, etc. Hiring of an assets does not amount to a contract to carrying out any work. Please refer CIT v. Poompuhar Shipping Corporation Ltd. (2006) 282 ITR 3 (Mad). See also Roy Mitra Enterprise v. ACIT [2012] 20 taxmann.com 86 (ITAT­ Kol.), Jaiprakash Enterprises Ltd. v. ACIT [2012] 49 SOT 1 (ITAT-Luck.)

Q.9. Whether supply of out sources, manufactured goods under contract will be treated as a works contract u/s 194C.?

A.9. It was held that the supply of outsourced manufactured goods by the contract manufacturer constituted an outright sale and could not be treated as a works contract within the scope of section 1 94C. Consequently, the assessee was not liable to deduct tax at source from the purchase price of the goods paid by it to the contract manufacturer or the supplier. [Tuareg Marketing (P) Ltd. v. ACIT (2009) 28 SOT 1 (Del); Novartis Healthcare (P) Ltd. v. ITO, TDS (Mum). See also CIT v. Nova Nordisk Pharma India Ltd. [2012] 341 ITR 451 (Kar.), CIT v. Glenmark Pharmaceuticals Ltd. (2010) 324 ITR 199 (Bom), Dy CIT v. Reebok India Co. (2006) 10 TTJ 976 (Del). Also see Whirlpool of India Ltd. v. Jt. CIT (2007) 16 SOT 435 (Del)].

Q.10. Whether Service contract covered by S. 194C?

A.10. Yes, Circular : No. 681, dated 8-3-1994

Q.11. Whether provisions of section 194C shall apply in respect of all contracts?

A.11. Before a person can be called a contractor his status must have nexus in its characteristics as carrying out work for another person as a contractor in the ordinary sense and not merely carrying on activities of his own business or profession in the ordinary course by charging fees or remuneration. [All Gujarat Federation of Tax Consultants v CBDT (1995) 214 ITR 276 (Guj)].

Q.12. Is there any circular that may help in differentiating between works contract and any other contract?

A.12. Yes, Circular No.681, dated 8-3-1 994 issued by CBDT elaborates upon various kinds of contracts that may fall within the definition of works contract and also specifies the nature of contract that shall fall out of the preview of section 1 94C.

Q.13. Whether the provisions of section 194C are also applicable to non resident?

A.13. No, the payments made to non resident contractor would come within the preview of section 195.

Q.14. Whether provisions of section 194C shall apply to franchise agreements?

A.14. No, the provisions of section 194C shall not apply to franchise agreement as under the franchise arrangement, their consist mutual obligations and rights. Please refer CIT v. Career Launcher India Ltd. (2012) 250 CTR 240 (Del)].

Q.15. Where the assessee entered into contract with transporter for transporting goods from plant to various destination, whether such contract shall attract TDS u/s 194C or 194I?

A.15. (i) That to decide whether a contract is one for “transportation” or for “hiring”, the crucial thing is to see who is doing the transportation work. If the assessee takes the trucks and does the work of transportation himself, it would amount to hiring. However, if the services of the carrier were used and the payment was for actual transportation work, the contract is for transportation of goods and not an arrangement for hiring of vehicles, and as such provisions of section 194C shall apply. Please refer ITO v. Indian Oil Corporation (Del) (Trib), see also CIT (TDS) v. Swayam Shipping Services P. Ltd. (2011) 339 ITK 647 (Guj)].

(ii) Payments made by assessee to transporters providing vehicles and driver to pick and drop employees is liable to TDS under section 1 94C and not section 194-I. Bharat Electronics Ltd. v. Dy. CIT (TDS), [2012] 50 SOT 172 (ITAT-Delhi)

However in case of payments made by transport contractor for hiring tankers to use them in transport contract business is not liable to

TDS under section 194C, in such case S. 194I shall apply. Bhail Bulk Carriers v. ITO [2012] 50 SOT 622 (ITAT-Mum.)

Q.16. Whether provisions of S. 194C shall apply to subcontracting?

A.16. Yes, where assessee contractor got work done through another party under his supervision and control, there existed relationship of ‘contractor’ and ‘sub-contractor’ requiring assessee to deduct tax at source under section 194C. Ratan J Batliboi v. ACIT [2012] 24 taxmann.com 96 (ITAT-Mum.)

Q.17. Whether, having a contract is a primary requirement for deduction of tax u/s 194C?

A.17. Yes, In absence of any contract between assessee-contractor and sub­contractor, assessee was not liable to deduct TDS under section 194C on payments made to them. Ratnakar Sawant, Dinesh N. Shah & Co. v. ITO, [2012] 22 taxmann.com 218 (ITAT-Mum.)

Q.18. Whether the provisions of Section 194C shall also apply in a situation when assessee entered in to a separate contract for supply of goods and erection work?

A.18. In a case where three separate agreements were entered into : one for supply of goods, second for erection works and third for civil engineering work, section 194C cannot be pressed into service to deduct tax at source on payment for supply of material merely because said agreement is a part of composite transaction. CIT v. Karnataka Power Transmission Corporation Ltd. [2012] 21 taxmann.com 473 (Kar.)

Q.19. Whether TDS u/s 194C deductible on erection and commissioning of plan even in case of composite contract?

A.19. In case of common purchase order for supply of plant and for erection and commissioning of plant, the pre dominant object of the contract is the purchase of the plant and the erection and commissioning is only incidental. However in the cases where two contracts are separable contracts TDS shall be deductible on the amount attributable to the erection and commissioning and not on the gross sum paid by the assessee. Please refer Senior Accounts Officer (O & M), Haryana Power Generation Corpn. Ltd. v. ITO (2006) 103 TTJ 584 (Del).

Q.20.Whether Contract for carrying goods and passengers by trailer, utility vans, water tanker, sumos, etc., is covered by section 194C or by section 194-I?

A.20. Contract for carrying goods and passengers by trailer, utility vans, water tanker, sumos, etc., is covered by section 194C and not by section 194-I. CIT (TDS) v. Reliance Engineering Associates (P.) Ltd. [2012] 21 taxmann.com 539 (Guj.)

Q.21. Whether Production of motion films or cinematographic films would fall within meaning of expression ‘work’ as contemplated under section 194C?

A.21. Yes, production of motion films or cinematographic films would fall within meaning of expression ‘work’ as contemplated under section 1 94C. Nitin M. Panchamiya v. ACIT*[2012] 50 SOT 468 (ITAT- Mum.)

Q.22. Whether contract for supply of labour shall attract TDS u/s 194C?

A.22. Yes, payment made to Calcutta Dock Labour Board for supply of labor for assessee’s business, attracted TDS provisions of section 1 94C Dy. CIT v. Kamal Mukherjee & Co. (Shipping) (P.) Ltd.* [2012] 51 SOT 73 (ITAT- Kol.), see also Associated Cement Co. Ltd. v. CIT (1979) 120 ITR 444 (Pat).

Q.23. Whether sponsorship money paid shall attract TDS u/s 194C?

A.23. Where assessee-management consultant was organizing conferences and sponsorship money was paid to it after conceptualization of conferences, it could not be said that assessee had undertaken to organize said conference at instance of sponsors and, hence, provisions of section 194C (2) could not be invoked. Dr. Raju L Bhatia v. JCIT* [2012] 134 ITD 615 (ITAT-Mum.), however Circular: No. 715, dated 8-8-1995, provides for TDS u/s 194C on sponsorship.

Q.24. Whether payments made to finance companies in consideration of providing access to their customer database shall attract TDS u/s 194C?

A.24. Where assessee entered into agreements with finance companies to provide access to their customer database, it was not a contract for service and, thus, assessee was not required to deduct tax at source while making payments to finance companies. Dy. CIT v. Armour Consultants (P.) Ltd.* [2012] 50 SOT 140 (ITAT-Chennai)

Q.25. Whether provisions of section 194C shall apply to payment made to Security Guard?

A.25. Yes, please refer Glaxo Smith Kline Pharmaceuticals Ltd. v. ITO (TDS) (2011) 48 SOT 643 (Pune)(Trib).

Q.26. Whether payment made to daily wager shall attract TDS u/s 194C?

A.26. No, please refer CIT v. DewanChand (2009) 17 DTR 337 (Del).

Q.27. Whether the provision of section 194C shall also apply to the collections made by contractor?

A.27. Tax u/s 1 94C has to be deducted from the payments made to a contractor at the time of such payment to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or any other more and therefore no tax deductible on the amount collected by contractor on behalf of municipal committee. {S.S. and Co. Octroi Contractors v. State of Punjab and Others (204) 268 ITR 398 (P&H)].

Q.28. What is the criteria to distinguish between works contract and contract for sale of goods?

A.28. The question whether a particular contract is a contract for sale or works contract shall depend upon the facts and circumstances of each case. Please refer State of Gujarat v Variety Body Builders 38 STC 176 (SC) and Anamolu Seshagiri Rao & Co. v. State of Andhra Pradesh (1973) 32 STC 51 (AP), P.S.& Company v. State of Andhra Pradesh 56 STC 283, Sentinel Rolling Shutters & Engineering Co. (P) Ltd. v. CST (1978) 42 STC 409 (SC).

Q.29. Whether a contract to improve customers goods will amount to works contract?

A.29. Yes, please refer Shankar Vittal Motor Co. v. State of Mysore (1964) 15 STC 771 (Mys).

Q.30. Whether provisions of section 1 94C shall apply to bottling contracts ?

A.30. yes, please refer United Exercise v. CST 28 STC 16.

Q.31. Whether provisions of section 194C shall apply to periodic repairing?
A.31. yes, please refer Eastern Typewriter Service v. State of Andhra Pradesh (1978) 42 STC 18 (AP), also refer Circular: No. 715, dated 8-8-1 995.

Q.32. Whether provisions of section 194C shall apply on supply of packing material?

A.32. Where assessee-company purchased printed cartons with its own specifications from different suppliers for packing plastic containers in which rolls films were packed, payment for said purchases was not contractual payment requiring deduction of tax under section 1 94C. Please refer Jindal Photo Films Ltd. v. ITO [2006] 5 SOT 272 (Delhi), see also Wadilal Dairy International Ltd. v. Asssitant CIT (2001) 70 TTJ (Pune-Trib) 77. Also see Balsara Home Products Ltd. v. ITO (2005) 94 TTJ (Ahd.) 970. See also ITO v. Dr.Willmar Schwabe India Pvgt. Ltd. (205) 3 SOT 71 (Del).

Q.33 Whether provision of section 194C shall apply on supply of printed labels by printer to assessee?

A.33. The supply of printed labels by the printer to the assessee amounted to sale and not a works contract and that the provisions of S. 194C were not attracted. Please refer CIT v. Dabur India Ltd. (2005) 198 CTR (Del) 375. BDA Ltd. v. ITO, (TDS)(2006) 281 ITR 999 (BOM), CIT v. Dabur India Ltd. (2006) 283 ITR 197 (Del) also refer Circular: No. 715, dated 8-8-1995.

Q.34. Whether provisions of section 194C shall apply to clearing and forwarding agent?

A.34. Payment made to clearing and forwarding agent is of the nature of payment made for carrying out any work. Please refer National Panasonic India Pvt. Ltd. v. DCIT (TDS) (205) 3 SOT 16 (Del). See also Glaxo Smith Kline Consumer Healthcare Ltd. v. ITO (2007) 12 sot 221 (Del Trib).

Q.35. What would be the scope of an advertising contract for the purpose of section 194C of the Act?

A.35. The term ‘advertising’ has not been defined in the Act. During the course of the consideration of the Finance Bill, 1995, the Finance Minister clarified on the Floor of the House that the amended provisions of tax deduction at source would apply when a client makes payment to an advertising agency and not when advertising agency makes payment to the media, which includes both print and electronic media. The deduction is required to be made at the rate of 1 per cent. It was further clarified that when an advertising agency makes payments

to their models, artists, photographers, etc., the tax shall be deducted at the rate of 5 per cent as applicable to fees for professional and technical services under section 194J of the Act. Circular: No. 715, dated 8-8- 1995.

Q.36. At what rate is tax to be deducted if the advertising agencies give a consolidated bill including charges for art work and other related jobs as well as payments made by them to media?

A.36. The deduction will have to be made under section 194C at the rate of 1 per cent. The advertising agencies shall have to deduct tax at source at the rate of 5 per cent under section 194J while making payments to artists, actors, models, etc. If payments are made for production of programmes for the purpose of broadcasting and telecasting, these payments will be subjected to TDS @2 per cent. Even if the production of such programmes is for the purpose of preparing advertisement material, not for immediate advertising, the payment will be subject to TDS at the rate of 2 per cent. Circular: No. 715, dated 8-8-1995.

Q.37 Where the tax is required to be deducted at source on payments made directly to the print media/Doordarshan for release of advertisements?

A.37. The payments made directly to print and electronic media would be covered under section 1 94C as these are in the nature of payments for purposes of advertising. Deduction will have to be made at the rate of 1 per cent. It may, however, be clarified that the payments made directly to Doordarshan may not be subjected to TDS as Doordarshan, being a Government agency, is not liable to income-tax. Circular: No. 715, dated 8-8-1995.

Q.38. Whether a contract for putting up a hoarding would be covered under section 194C or 194-I of the Act?

A.38. The contract for putting up a hoarding is in the nature of advertising contract and provisions of section 194C would be applicable. It may, however, be clarified that if a person has taken a particular space on rent and thereafter sub lets the same fully or in part for putting up a hoarding, he would be liable to TDS under section 194-I and not under section 1 94C of the Act. Circular: No. 715, dated 8-8-1995.

Q.39. Whether payment under a contract for carriage of goods or passengers by any mode of transport would include payment made to a travel agent for purchase of a ticket or payment made to a clearing and forwarding agent for carriage of goods?

A.39. The payments made to a travel agent or an airline for purchase of a ticket for travel would not be subjected to tax deduction at source as the privity of the contract is between the individual passenger and the airline/travel agent, notwithstanding the fact that the payment is made by an entity mentioned in section 194C(1). The provision of section 1 94C shall, however, apply when a plane or a bus or any other mode of transport is chartered by one of the entities mentioned in section 1 94C of the Act. As regards payments made to clearing and forwarding agent for carriage of goods, the same shall be subjected to tax deduction at source under section 194C of the Act. Circular: No. 715, dated 8-8-1995.

Q.40. Whether a travel agent/clearing and forwarding agent would be required to deduct tax at source from the sum payable by the agent to an airline or other carrier of goods or passengers?

A.40. The travel agent, issuing tickets on behalf of the airlines for travel of individual passengers, would not be required to deduct tax at source as he acts on behalf of the airlines. The position of clearing and forwarding agents is different. They act as independent contractors. Any payment made to them would, hence, be liable for deduction of tax at source. They would also be liable to deduct tax at source while making payments to a carrier of goods, Please refer CIT v Cargo Linkers (2008) 218 CTR 695 (Del), ACIT v Grandprix Fab.(P) Ltd. (2010) 34 DTR 248 (Del – Trib). Circular: No. 715, dated 8-8-1995.

Q.41. Whether section 194C would be attracted in respect of payments made to couriers for carrying documents, letters, etc.?

A.41. The carriage of documents, letters, etc., is in the nature of carriage of goods and, therefore, provisions of section 1 94C would be attracted in respect of payments made to the couriers. Circular: No. 715, dated 8-8-1995.

Q.42. In case of payments to transporters, can each GR be said to be a separate contract, even though payments for several GRs are made under one bill?

Normally, each GR can be said to be a separate contract, if the goods are transported at one time. But if the goods are transported continuously in pursuance of a contract for a specific period or quantity, each GR will not be a separate contract and all GRs relating to that period or quantity will be aggregated for the purpose of the TDS. Circular: No. 715, dated 8-8-1995.

Q.43. Whether there is any obligation to deduct tax at source out of payment of freight when the goods are received on “freight to pay” basis?

Yes. The provisions of tax deduction at source are applicable irrespective of the actual payment. Circular: No. 715, dated 8-8-1995.

Q.44. Whether a contract for catering would include serving food in a restaurant/sale of eatables?

TDS is not required to be made when payment is made for serving food in a restaurant in the normal course of running of the restaurant/cafe. Circular: No. 715, dated 8-8-1995.

Q.45. Whether payment to a recruitment agency can be covered by section 194C?

Provisions of section 194C apply to a contract for carrying out any work including supply of labour for carrying out any work. Payments to recruitment agencies are in the nature of payments for services rendered. Accordingly, provisions of section 1 94C shall not apply. The payment will, however, be subject to TDS under section 194J of the Act. Circular: No. 715, dated 8-8-1995.

Q.46. Whether section 194C would cover payments made by a company to a share registrar ?

In view of answer to the earlier question, such payments will not be liable for tax deduction at source under section 194C. But these will be liable to tax deduction at source under section 194J. Circular: No. 715, dated 8-8-1 995.

Q.47. Whether FD commission and brokerage can be covered under section 194C?

No Circular: No. 715, dated 8-8-1995.

Q.48. Whether section 194C would apply in respect of supply of printed material as per prescribed specifications?

Yes. Circular: No. 715, dated 8-8-1 995.

Q.49. Whether tax is required to be deducted at source under section 194C or 194J on payment of commission to external parties for procuring orders for the company’s product?

Rendering of services for procurement of orders is not covered under the provisions of section 194C. However, rendering of such services may involve payment of fees for professional or technical services, in which case tax may be deductible under the provisions of section 194J. Circular: No. 715, dated 8-8-1995.

Q.50. Whether advertisement contracts are covered under section 194C only to the extent of payment of commission to the person who arranges release of advertisement, etc., or whether deduction is to be made on the gross amount including bill of media?

Tax is to be deducted at the rate of 1 per cent of the gross amount of the bill. Circular: No. 715, dated 8-8-1995.

Q.51. Whether deduction of tax is required to be made under section 194C for sponsorship of debates, seminars and other functions held in colleges, schools and associations with a view to earn publicity through display of banners, etc., put up by the organisers?

The agreement of sponsorship is, in essence, an agreement for carrying out a work of advertisement. Therefore, provisions of section 194C shall apply. Circular: No. 715, dated 8-8-1 995.

Q.52. Whether deduction of tax is required to be made on payments for cost of advertisement issued in the souvenirs brought out by various organisations?

Yes. Circular: No. 715, dated 8-8-1995.

Q.53. Whether a maintenance contract including supply of spares would be covered under section 194C or 194J of the Act?

Routine, normal maintenance contracts which includes supply of spares will be covered under section 1 94C. However, where technical services are rendered, the provision of section 194J will apply in regard to tax deduction at source. Circular: No. 715, dated 8-8-1995.

Q.54. Whether the deduction of tax at source under sections 194C and 194J has to be made out of the gross amount of the bill including reimbursements or excluding reimbursement for actual expenses ?

Sections 194C and 194J refer to any sum paid. Obviously, reimbursements cannot be deducted out of the bill amount for the purpose of tax deduction at source. Circular: No. 715, dated 8-8-1995.

Q.55 Whether provisions of S. 194C shall apply to cooling charges paid to cold storage owners?

Yes, the arrangement between the customer and cold storage owners are basically contractual in nature and hence the provisions of section 194C (instead of section 194-I) will be applicable to the amount paid as cooling charges by the customers of the cold storage. [Circular No. 1/2008, dated 10/01/2008].

Q.56 Whether provisions of S. 194C shall also apply to banks in relation to services rendered by it?

The provisions of section 1 94C would not apply in relation to payments made to banks for discounting bills, collecting/receiving payments through cheques/drafts, opening and negotiating Letters of Credit and transactions in negotiable instruments. Circular : No. 681, dated 8-3-1994.

Q.57 Is it necessary to deduct tax at source from payment made to foreign shipping company?

Sec. 172 is a self-contained Code for the levy and recovery of the tax, ship-wise and journey-wise, and requires filing of the return within a maximum time of thirty days from the date of departure of the ship.

The provisions of sec. 172 are to apply, notwithstanding anything contained in the other provisions of the Act. Therefore, in such cases the provisions of Sec. 194C and 195 relating to tax deduction at source are not applicable. The recovery of tax is to be regulated for a voyage undertaken from port in India by a ship under the provisions of Sec. 172.

Sec. 194C deals with works contracts, including carriage of goods and passengers by any mode of transport other than the Railways. This section applies to payments made by a person referred to in clauses (a) to (j) of sub-sec.(1) to any ―resident‖. It is clear from the section that the area of operation of TDS is confined to payment made to any ―resident‖. On the other hand, sec. 172 operates in the area of computation of profits from shipping business of non-residents. Thus, there is no overlapping in the areas of operation of these sections.

Q. 58 What would be the scope of an advertising contract for the purpose of Sec. 194C of the Act ?

The term ‘advertising‘ has not been defined in the Act. During the course of the consideration of the Finance Bill, 1995, the Finance Minister clarified on the floor of the House that the amended provisions of TDS would apply when a client makes payment to an advertising agency and not when advertising agency makes payment to the media, which includes both print and electronic media. It was further clarified that when an advertising agency makes payment to their models, artists, photographs, etc., the tax shall be deducted at the rate of 10% as applicable to fees for professional & technical services u/s 194J.

W.e.f. 1.10.2009 there is no separate rate for advertisement contract. The tax is required to be deducted as on other contract @1% where payee is individual or HUF and @2% in other cases.

59. Whether payments made to a hotel for rooms hired during the year would be in the nature of rent ?

Payment made by persons, other than individuals and HUFs for hotel accommodation taken on regular basis will be in the nature of rent subject to TDS under Sec. 194-I.

60. In case an individual enters into a contract with a hotel and later on same amount is reimbursed to individual by company, would it attract TDS ?

In case employees of a company have themselves entered into a contract individually with a hotel and are directly making the payment to the hotel but, subsequently, claiming the same from company. In this case, the company would not be liable to deduct tax at source even where the total amount of reimbursement individually or collectively exceeds Rs. 180,000.

61. In case company enters into a contract with a hotel whether the same would attract TDS?

In case company entered into a contract individually with a hotel and is directly making the payment to the hotel, the company would be liable to deduct tax at source even where the total amount of reimbursement individually or collectively exceeds Rs. 180,000.

62. Whether the limit of Rs. 180,000 per annum would apply separately for each co-owner of a property ?

Under Sec. 194-I, the tax is deductible from payment by way of rent, if such payment to the payee during the year is likely to be Rs. 180,000 or more. If there are a number of payees, each having definite and ascertainable share in the property, the limit of Rs. 180,000 will apply to each of the payee/co-owner separately. The payer and payee are, however, advised not to enter into same agreement to avoid TDS provisions.

63. Whether the rent paid should be enhanced for notional income in respect of deposit given to the landlord ?

The tax is to be deducted from actual payment and there is no need for computing notional income in respect of a deposit given to landlord. If the deposit is adjustable against future rent, the deposit is in the nature of advance rent subject to TDS.

64. Whether payment made by company taking premises on rent but styling the agreement as a business centre agreement would attract the provisions of Sec. 194- I?

The tax is to be deducted from rent paid for hire of a property. The incidence of deduction of tax at source does not depend upon the nomenclature, but on the content of the agreement. It may be noted that charges paid to a business centre are of composite nature, i.e., charges for use of premises and for other services. If the consideration is for lump sum, then tax will be deductible for entire amount. Therefore, a bifurcation is required.

65. Whether in a case of composite arrangement for user of premises and provision of manpower for which consideration is paid as a specified percentage of turnover, 194-I of the Act would be attracted?

If the composite agreement in essence is the agreement for taking premises on rent, the tax will be deducted under Sec. 194-I from payments thereof.

66. Whether a contract for putting up a hoarding would be covered under Sec. 194-I or 194C?

The contract for putting up a hoarding is in the nature of advertising contract and provisions of Sec. 194C would be applicable. It may, however, be clarified that if a person has taken a particular space on rent and thereafter sub-lets the same fully or in part for putting up a hoarding, he would be liable to TDS under Sec. 194-I and not under Sec. 194C.

67. Whether tax is required to be deducted at source where rent has been paid in advance before 1-6-1994?

Where an advance of rent has been paid before 1-6-1994, there is no requirement for deduction of tax at source.

68. Where initial payment is made as a loan or deposit out of which rent is to be adjusted whether TDS will be deducted ?

Where initial payment is made as a loan or deposit out of which rent is to be adjusted on month-to-month basis tax will have to be deducted at source. If deposit is refundable then same would not be subject to TDS.

69. Whether tax is required to be deducted at source where a non-refundable deposits has been made by tenant?

Where the tenant makes a non-refundable deposit tax would have to be deducted at source, as, such deposit represents the consideration for the use of the land on the building, etc. Therefore, it partakes the nature of rent as defined in Sec. 194-I. If, however, the deposit is refundable, no tax would be deductible at source. It is further clarified that if the deposit carries interest, the tax to be deducted on the amount of interest will be governed by Sec. 194A of the Income Tax Act.

70. Whether the tax is to be deducted at source from warehousing charges?

The term ‗rent‘ defined in the Explanation (i) to Sec. 194-I means any payment by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of the any building or land. Therefore, the warehousing charges will be subject to deduction of tax under Sec. 194-I.

71. Whether the tax is to be deducted at source if the rentals include Municipal tax, ground rent, etc.?

The basis of tax deduction at source under Sec. 194-I is ―income by way of rent‖. Rent has been defined, in the Explanation (i) to Sec. 194-I, to mean any payment under any lease, tenancy, agreement, etc., for use of any land or building. Thus, if the Municipal taxes, ground rent, etc., are borne by the tenant, no tax will be deducted on such sum.

72. Whether Sec. 194-I is applicable to rent paid for the use of only a part or a portion of any land or building?

The definition of the term ―any land‖ or ―any building‖ would include a part or portion of such land or building.

73. Whether liability to deduct TDS arises at the time of payment of rent or credit of same?

Tax should be deducted either at the time of actual payment of rent or at the time of its credit to the account of the payee, whichever is earlier.

74. Whether tax needs to be deducted where service tax is included in rent?

Service tax paid by the tenant does not partake the nature of income of the landlord. The landlord only acts as a collecting agency for Government for collection of service tax. Therefore, it has been decided that tax deduction at source under Sec. 194-I of the Income Tax Act would be required to be made on the amount of rent paid/payable without including the service tax.

75. Whether tax is deductible on leasing or hiring of machinery?

Tax is deductible on leasing or hiring of machinery.

76. Whether tax is deductible on rent for plant and equipment?

Tax is deductible on rent for plant and equipment.

77. Whether tax is deductible on rent for furniture and fittings?

Tax is deductible on rent for furniture‘s and fittings.

78. Whether tax is deductible on leasing or hiring of machinery?

Tax is deductible on leasing or hiring of machinery.

79. Whether tax is deductible on rent of plant, machinery of equipment? If yes, what will be the percentage?

TDS @2% will be applicable on rent of plant, machinery of equipment.

80. Whether tax is deductible at source on adjustable deposit?

Any deposit given by the tenant which is adjustable against future rent in the nature of advance rent will be subject to TDS.

81. Whether tax is required to be deducted at source where a non-refundable deposit has been made by the tenant?

Where a tenant makes a non-refundable deposit, the tax will have to be deducted at source, as such deposit represents the consideration for the use of land or the building, etc., and, therefore, partakes the nature of rent as defined Sec. 194-I. No tax is to be deducted at source if deposit is refundable.

82. Whether Sec. 194-I is applicable to rent paid for the use only a part or portion of any land & building?

The definition of the term ‗any land‘ or ‗any building‘ would include a part or portion of such land or building.

83. Whether provision of Sec. 194-I is applicable on payments made for hotel accommodation taken on regular basis?

Payment made for hotel accommodation, taken on regular basis will be in the nature of rent and will be subject to TDS under Sec. 194-I.

84. Whether sharing of office and utilizing other services can be treated as rent for deduction of tax under Sec. 194-I?

Where the payment is made by the assessee-company to another company towards sharing office and for utilizing services and facilities other company, it has been held that payment made for the use and occupation of premises with furniture and fixture, etc., has to be called as rent and, therefore, Sec. 194-I will be applicable.

85. M/s XYZ & Co. (a firm) (owner) lets out their office premises to M/s. ABC & (a firm) (tenant) for Rs. 2,00,000/- p.a.. In turn, M/s. ABC & Co. (tenant) sub­lets this office to M/s PQR & Co. (sub-tenant) for Rs. 2,40,000/-. Whether provision of Sec. 194-I would be applicable on payments?

In the first instance, M/s. ABC & Co. will deduct tax from rent of Rs. 2,00,000/-. In the second case, M/s. PQR & Co. will also deduct tax from Rs. 2,40,000/-, even if M/s. ABC & Co. is not the owner of the office.

86. Whether scope of an advertising contract will be covered under Sec.194C of the Act?

When a client makes payment to an advertising agency the deduction is required to be made at the rate of 1 per cent. Further, when an advertising agency makes payments to their models, artists, photographers, etc., the tax shall be deducted at the rate of 5 per cent as applicable to fees for professional and technical services under Sec. 194J of the Act. W.e.f. 01.10.2009 there is no separate rate for advertisement contract. The tax is required to be deducted @1% where payee is an individual or HUF and 2% in other cases.

87. Whether the advertising agency would deduct tax at source out of payments made to the media?

The term ‗advertising‘ has not been defined in the Act. During the course of the consideration of the Finance Bill, 1995, the Finance Minister clarified on the floor of the House that the amended provisions of TDS would apply when a client makes payment to an advertising agency and not when an advertising agency make payment to media, which includes both print and electronic media.

88. Whether tax is required to be deducted if the advertising agencies give a consolidated bill including charges for artwork and other related jobs as well as payment made by them to media?

The deduction will have to be made under Sec. 194C at the rate of 1 per cent. The advertising agencies shall have to deduct tax at source at the rate of 5 per cent under Sec. 194J while making payments to artists, actors, models, etc. If payments are made for production of programmes for the purpose of broadcasting and telecasting, these payments will be subjected to TDS @ 2 per cent.

89. Whether tax is required to be deducted at source on payments made directly to the print media/ Doordarshan for release of advertisements?

The payments made directly to print and electronic media would be covered under Sec. 194C, as these are in the nature of payments for purposes of advertising. Deduction will have to be made at the rate of 1 per cent.

Payments made directly to Doordarshan may not be subjected to TDS as Doordarshan, being a Government agency, is not liable to income-tax. W.e.f. 01 .10.2009 there is no separate rate for advertisement contract. The tax is required to be deducted @1% where payee is an individual or HUF and 2% in other cases.

90. Whether a contract for putting up a hoarding would be covered under section 194C or 194I of the Act?

The contract for putting up a hoarding is in the nature of an advertising contract and provisions of Sec.1940 would be applicable. It may, however, be clarified that if a person has taken a particular space on rent and thereafter sub-lets the same fully or in part for putting up a hoarding, he would be liable to TDS under Sec. 194-I and not under Sec. 1940 of the Act.

91. Whether payment made to a travel agent for purchase of a ticket would fall under ambit of tax deduction?

The payments made to a travel agent or an airline for purchase of a ticket for travel would not be subjected to tax deduction at, source as the privity of the contract is between the individual passenger and the airline/travel agent, notwithstanding the fact that the payment is made by an entity mentioned in Sec. 1940(1).

92. Whether a travel agent would be required to deduct tax at source from the sum payable by the agent to an airline?

The travel agent issuing tickets on behalf of the airlines for travel of individual passengers would not be required to deduct tax at source as he acts on behalf of the airlines.

93. Whether a clearing and forwarding agent would be required to deduct tax at source from the sum payable by the agent to carrier of goods or passengers?

The clearing and forwarding agents act as independent contractors. Any payment made to them would, be liable for deduction of tax at source. They would also be liable to deduct tax at source while making payments to a carrier of goods.

94. Whether Sec. 194C would be attracted in respect of payments made to couriers for carrying documents, letters, etc.?

The carriage of documents, letters, etc., is in the nature of carriage of goods and, therefore, provisions of Sec. 1940 would be attracted in respect of payments made to the couriers.

95. Whether each GR can be said to be a separate contract, even though payments for several GRs are made under one bill?

Normally, each GR can be said to be a separate contract, if the goods are transported at one time. But if the goods are transported continuously in pursuance of a contract for a specific period or quantity, each GR will not be a separate contract and all GRs relating to that period or quantity will be aggregated for the purpose of the TDS.

96. Whether there is any obligation to deduct tax at source out of payment of freight when the goods are received on “freight to pay”basis?

The provisions of tax deduction at source are applicable, irrespective of the actual payment.

97. Whether a contract for catering would include serving food in a restaurant/sale of eatables?

TDS is not required to be deducted when payment is made for serving food in a restaurant in the normal course of running of the restaurant/cafe.

98. Whether payment to a recruitment agency can be covered by Sec. 194C?

Provisions of Sec.194C apply to a contract for carrying out any work, including supply of labour for carrying out any work. Payments to recruitment agencies are in the nature of payments for services rendered. Accordingly, provisions of Sec. 194C shall not apply. The payment will, however, be subject to TDS under Sec. 194J of the Act.

99. Whether Sec.194C would cover payments made by a company to a share registrar?

Payments made by a company to a share registrar will not be liable for tax deduction at source under Sec. 1940. But these payment will be liable to tax deduction at source under Sec. 194J.

100. Whether FD commission and brokerage can be covered under Sec. 194C?

FD commission and brokerage will not be liable for tax deduction at source under Sec. 1940.

101. Whether Sec.194C would apply in respect of supply of printed material as per prescribed specifications?

Sec. 1940 would apply in respect of supply of printed material.

102. Whether tax is required to be deducted at source under Sec. 194C on payment of commission to external parties for for procuring orders for the company‟s products?

Rendering of services for procurement of orders is not covered under the provisions of Sec.1940. However, rendering of such services may involve payment of fees for professional or technical services, in which case tax may be deductible under the provisions of Sec. 194J.

103. Whether payment of commission to the person who arranges for release of advertisement would be covered under Sec. 194C ?

Payment of commission to the person who arranges for release of advertisement would be covered under Sec. 1940. Thus option a) is correct.

104. Whether deduction of tax is required to be made under section 194C for sponsorship of debates, seminars and other functions held in colleges, schools and associations with a view to earn publicity through display of banners put up by the organizers?

The sponsorship is in essence an agreement for carrying out a work of advertisement. Therefore, provisions of section 1940 shall apply.

105. Whether deduction of tax is required to be made on payments for cost of advertisement issued in the souvenirs brought out by various organizations?

Deduction of tax is required to be made on payments for cost of advertisements issued in the souvenirs brought out by various organisations.

106. Whether the services of a regular electrician on contract basis will fall in the ambit of technical services to attract the provisions of section 194J of the Act?

The payments made to an electrician or to a contractor who provides the service of an electrician will be in the nature of payment made in pursuance of a contract for carrying out any work, Accordingly, provisions of Sec. 1940 will apply in such cases.

107. Whether a maintenance contract including supply of spares would be covered under Sec. 194C of the Act?

Routine, normal maintenance contracts which include supply of spares will be covered under Sec. 194C. However, where technical services are rendered the provision of Sec. 194J will apply in regard to tax deduction at source.

108. Whether the deduction of tax at source under Sec. 194C has to be made out of the gross amount of the bill, including reimbursements or excluding reimbursement for actual expenses ?

Sec.194C refers to any sum paid. Certainly, reimbursements cannot be deducted out of the bill amount for the purpose of tax deduction at source.

109. “X” is required to make a payment of Rs. 15,000/- to a contractor “Y” for the first time during the financial year. Whether such transaction will attract TDS u/s 194C?

Mr. “X” need not deduct tax at source (TDS), because single payment is below Rs 30,000/-.

110. “X” is required to make a payment of Rs. 30,200/- to a contractor “Y” for the first time during the financial year. Whether such transaction will attract TDS u/s 194C ?

Mr. “X” need not deduct tax at source (TDS) because single payment is below Rs 30,200/-.

111. Mr. “X”makes following payments to Mr. “Y”during a Financial Year

Paid Rs. 20,000/- on 10/04/20XX
Paid Rs. 25,000/- on 15/05/20XX
Paid Rs 26,000/- on 12/06/20XX
Paid Rs 10,000/- on 13/07/20XX
112. Whether such transaction will attract TDS U/s 194C ?

In such case Mr. “X” need not to deduct tax at source on 1 0/04/20XX, 1 5/05/20XX and 12/06/20XX because each is payment below Rs. 20,000 and Aggregate of payments is Rs. 71,000/- as on 1 2/06/20XX which is less than Rs. 75,000.

But as on 13/07/20XX the aggregate of payments is Rs. 81,000 (Rs.20,000+Rs. 25,000 + Rs. 26,000 + Rs.10,000 ) which is more than Rs. 75,000. “X” Should deduct tax at source on 13/07/20XX for total of payments, i.e., Rs 81,000/- (Since he didn‘t deduct any TDS for previous payments).

113. Whether collecting deposits would fall within the definition of works within the meaning of Sec. 194C?

There are qualitative differences between the subject referred to as “work” and the subject referred to as “service”. The two words convey different ideas. In the former, i.e., “work”, the activity is predominantly physical, it is tangible. In the activity referred to as “services”, the dominant feature of the activity is intellectual, or at least mental.

114. Mr. X a C&F agent collected freight from ABC Ltd. An exporter intending to transport his goods for export and paid the same to airlines without deducting TDS. Whether this transaction would attract Sec. 194C ?

Mr. X is not liable to deduct TDS since the contract is between the ABC Ltd. and the Airlines and Mr. X is only an intermediary. Hence, Mr. X cannot be held to be ‗person responsible‘ within the meaning of Sec.194C.

115. Whether to fulfill the basic requirement of Sec.194C (2), sub-contractor has to carry out whole or any part of the work undertaken by the contractor?

There should be not only a contract between a contractor or sub-contractor, but the said contract has to be for carrying out whole or part of the work undertaken by the contractor. The requirement of Sec. 194C (2) is that the sub-contractor should carry out the whole or any part of the work undertaken by the contractor.

116. X a co-operative society was formed by the truck owners and it entered into contract with company for transportation. The company deducted TDS u/s. 194C(2). Whether the company was liable to deduct TDS on amount paid to truck-owners in terms of Sec. 194C(2) ?

Sec. 194C(2) dictates that the deduction is required only in case of a sub-contract. The relationship between company and its members was not that of a contractor and a sub­contractor. The society was nothing more than a conglomeration of truck operators themselves. There was no sub-contract.

117. Mr. X was engaged in transportation of goods for different companies. He was not the owner of any truck and used to hire the same at the time of dispatch. Whether transaction will fall under Sec. 194C?

Mr. X used to negotiate each trip at the time of dispatch and, hence, each transaction was a fresh contract. In each transaction the amount did not exceed Rs.30,000/-, Mr. X was not liable to deduct TDS. In case transaction amount exceeded Rs. 30,000 the same would come under the purview of Sec. 194C. If Mr. X proves that there was no material to show that all trips for transporting goods were under a single contract and payment for each trip being less than Rs.30,000/-, provisions of Sec. 194C were not applicable.

118. X manufactured the goods on the specifications given by the Mr. Y in his own premises. Raw material cost and expenses were incurred by him. Whether this transaction would fall under Sec. 194(C)?

The goods were manufactured by the Mr. X (i.e., manufacturer) in his own establishments in accordance with the specifications given by the Mr. Y. The raw material cost and other expenses were also incurred by Mr. X. The manufacturer also paid the excise duty when the goods were sold & the sales tax was also paid. When the goods were sold to Mr. Y the property in goods passed over to the Mr. Y. Therefore, the agreements of Mr. Y with the manufacturers (i.e., Mr. X) could not be termed as ‗works contract‘ and no TDS u/s. 194C has to be made.

119. Whether person responsible for paying any sum to any resident contractors for carrying out any work is liable to deduct TDS ?

Any person responsible for paying any sum to any resident contractors for carrying out any work including supply of labour for carrying out any work under a contract in pursuance of a contract between contractor and person specified, shall deduct income-tax at the time of such payment.

120. Whether TDS is required to be deducted on cash payment to contractor ?

Contractee liable to make payment to contractor shall deduct income-tax at the time of such payment thereof in cash or by issue of cheque or draft or any other mode.

121. Whether TDS is required to be deducted by the person responsible to give credits tDLIDTtrLItDr‟s aIIDFTt?

Contractee liable to make payment to contractor shall deduct income-tax at the time of such payment in cash or by issue of cheque or draft or any other mode or its credit to contractor‘s account or any other account, by whatever named called, whichever happens earlier.

122. Whether TDS is required to be deducted at material component ?

Where TDS is required to be made for the work of manufacturing or supplying of a product according to the requirement or specification of a customer by using material purchased from the customer, TDS shall be made on the invoice value excluding the value of material, if such value is mentioned separately in the invoice. Where value of the material is not mentioned separately in the invoice TDS shall be made on the whole of invoice value.

123. Whether personal work performed by contractor to an individual will attract TDS provisions ?

No TDS is required to be made by an individual or a HUF where payment is required to be made to the contractor for the work carried out for the personal purpose of such individual/HUF.

124. Whether TDS is required to be deducted where sum credited or paid exceeds Rs. 30,000?

No TDS is to be made where sum credited or paid or likely to be credited or paid does not exceed Rs.30,000/-.

125. Whether TDS is required to be deducted where aggregate of such sum credited or paid exceeds Rs. 75,000?

If aggregate of the amount of such sums credited or paid or likely to be credited or paid in the financial year exceeds Rs.75,000/-, TDS is required to be made.

126. Whether TDS required to be deducted where such sum is credited to the account of or paid to the contractor in the course of business of plying, hiring or leasing of goods carriages?

No TDS is to be made where such sum is credited to the account of or paid to the contractor in the course of business of plying, hiring or leasing of goods carriages if the PAN is furnished by the contractor.

127. Whether advertising falls under “works”?

The word “work” would include advertising. “Work” does not include manufacturing or supplying a product according to the requirement or specification of a customer by using the material purchased from a person other than such customer.

128. Whether broadcasting and telecasting including production of programmes for such broadcasting or telecasting fall under “works”?

The word “work” would include broadcasting and telecasting, including production of programmes for such broadcasting or telecasting. “Works” do not include manufacturing or supplying of a product according to the requirement or specification of a customer by using the material purchased from a person other than such customer.

129. Whether carriage of goods and passengers by any mode of transportation other than railways fall under “works”?

The word “work” would include carriage of goods and passengers by any mode of transportation other than railways. “work” does not include manufacturing or supplying a product according to the requirement or specification of a customer by using the material purchased from a person, other than such customer.

130. Whether catering falls under “works”?

The word “work” would include catering. “work” does not include manufacturing or supplying a product according to the requirement or specification of a customer by using the material purchased from a person, other than such customer.

131. Whether manufacturing or supplying of a product according to the requirement or specification of a customer by using the material purchased from such customer falls under “works”?

The word “work” would include manufacturing or supplying of a product according to the requirement or specification of a customer by using the material purchased from such customer. “work” does not include manufacturing or supplying of a product according to the requirement or specification of a customer by using the material purchased from a person, other than such customer.

132. Whether provision of Sec.194C are applicable to contract for sale or mere supply of goods ?

Provisions of Sec. 194C are applicable only in relation to ‗works contracts‘ and ‗labour contracts‘ but does not cover ‗contract for sale or mere supply of goods‘.

133. Whether deduction of tax at source u/sec. 194C is required to be made only from payment of any sum to resident contractors?

Under Sec. 194C, deduction of tax at source is required to be made from payment of any sum to resident contractors or sub-contractors.

134. Whether the Central Government or any State Government paying any sum to any resident contractor for carrying out any work in pursuance of a contract will be liable to deduct TDS?

The Central Government or any State Government responsible for paying any sum to any resident contractor for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor will be liable to deduct TDS.

135. Whether any society registered under the Societies Registration Act, 1860 paying any sum to any resident contractor for carrying out any work in pursuance of a contract will be liable to deduct TDS?

Any society registered under the Societies Registration Act, 1860 or under any such corresponding law to the Act in any part of India responsible for paying any sum to any resident contractor for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract will be liable to deduct TDS.

136. Whether any co-operative society paying any sum to any resident contractor for carrying out any work in pursuance of a contract will be liable to deduct TDS?

Any co-operative society responsible for paying any sum to any resident contractor for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract will be liable to deduct TDS.

137. Whether contractor must be resident in India for deduction of TDS?

The payee, i.e., contractor must be resident in India within meaning of Sec. 6 of the Income Tax Act.

138. Whether contractee is supposed to deduct TDS if payment exceeds Rs. 30,000?

Where advance payments are made, tax will have to be deducted if the total payment exceeds Rs. 30,000.

139. Whether contractee is supposed to deduct TDS if payment does not exceed Rs. 30,000?

No TDS is to be made where sum credited or paid or likely to be credited or paid does not exceed Rs.30,000/-. However, if aggregate of the amount of such sums credited or paid or likely to be credited or paid in the financial year exceeds Rs.75,000/-, TDS is required to be made.

140. Whether contractee is supposed to deduct TDS where the sum has been credited or paid before 1st June, 1972?

No tax was required to be deducted at source under Sec. 1940(1)where the sum was credited or paid before 1st June, 1972.

141. Whether the contractee is supposed to deduct TDS where the sum is credited or paid before 1st June, 1973 in pursuance of a contract between the contractor and the co-operative society?

No tax is required to be deducted at source where the sum is credited or paid before 1st day of June, 1973 in pursuance of a contract between the contractor and the co-operative society or in pursuance of a contract between such contractor and the sub-contractor in relation to any work (including supply of labour for carrying out any work) undertaken by the contractor for the co-operative society.

142. Whether TDS required to be deducted where an individual makes payment to contractor exclusively for personal purpose?

No individual or Hindu Undivided Family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purpose of such an individual or any member of Hindu Undivided Family.

143. Whether contractor can request contractee for non-deduction of tax ?

Any person who does not want to get tax deducted on amount payable to him may make an application in Form No. 13 to the Assessing Officer and obtain such certificate from him, as may be appropriate, person may refer the same to the payer for non-deduction of tax.

144. Whether contractor can request contractee to deduct tax at a lower rate?

Any person to who does not want to get deducted tax on amount payable to him may make an application in Form No. 13 to the Assessing Officer and obtain such certificate from him, as may be appropriate authoriting the payer to deduct tax at a lower rate.

145. Whether contractor can request department for non-deduction of tax or deduct tax at a lower rate without filling his/her PAN number?

As per Sec. 206AA(4), no certificate under Sec. 197 for deduction of tax at Nil rate or lower rate shall be granted, unless the application made under that section contains the Permanent Account Number of the applicant.

146. Whether any person can deduct TDS?

The payer should be the person responsible for deduction at source. The meaning of person responsible for paying has been defined under Sec. 204(iii).

147. Whether amount credited to suspense account would fall under sec. 194C?

According to the Explanation II to Sec. 194C, where any sum referred to in section 194C(1) or 194C(2) is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of sec. 194C shall apply accordingly.

148. Whether payment made to resident contractor would attract 1% TDS rate?

Payment to a resident contractor other than a company would attract TDS @2% & payment to a resident sub-contractor other than a company would attract TDS @ 1%. The rate of TDS will be 20% if PAN is not quoted by the deductee on or after 1.4.2010.

149. Whether TDS will be required to deduct where PAN number is not quoted?

The rate of TDS will be 20% in all the cases if PAN is not quoted by the deductee on or after 1.4.201 0.

150. Whether payer is responsible to deduct the TDS where contractor has undertaken to construct building or a dam which includes supply?

Where the contractor has undertaken to construct a building or a dam, and the government or other specified person has undertaken to supply all or any of the materials necessary for the work at the stipulated prices, the deduction will be related to the gross payment without excluding any adjustments on account of cost of materials.

151. Whether payer is responsible to deduct the TDS where contractor has undertaken to construct building or a dam which only includes labour job?

Where the contractor has undertaken only to provide the labour for the work, the ownership of the materials supplied remaining at all times with the government or other specified person, the sum payable to the contractor in respect of the contract will only be the amount paid for such labour or services and thus not include the price of the materials supplied by the government or other specified persons.

152. Whether tax deducted by payer will be deposited with any bank?

Tax deducted at source is to be deposited by remitting the same to any of the following banks:

Any branch of the Reserve Bank of India;
Any branch of the State Bank of India;
Any branch of selected public sector banks where income-tax offices are situated.
153. Whether payment deducted by government can be deposited on the same day?

Where the payment is made by or on behalf of the Government the same can be deposited on the same day (without using any challan form).

154. In case payment is deducted by any person/company whether he is suppose to deposit the same on the same day?

Where the payment is made by any person/company the same can deposited within one week from the last day of the month in which the deduction is made.

155. In case payment is deducted by any person/company on last day of accounting year whether he is suppose to deposit the same on the same day ?

If the amount is credited by person/company in the month of March the same can be deposited on or before the 30th April. Thus option b) is correct.

156. Whether payer is required to furnish any certificate to payee with respect to deduction of tax?

The payer is required to issue a TDS certificate for tax deducted at source to payee in Form No. 16A.

157. Whether any time limit specified for issuance of certificate to payee?

As per rule 31(3), the certificate for TDS is required to be issued within a period of one month from the end of the quarter (e.g. 30th July/30th September/31st December) during which the credit has been given or the sums have been paid, as the case may be except that for certificate for deduction during quarter ended March 31 to be issued on or before 30th May.

158. Where the tax deduction took place on last day of the accounting year whether there would be any time limit specified for issuance of certificate to payee?

Where the sum is credited by a person to the account of the payee as on the last day of the accounting year the certificate for deduction of tax at source shall be issued within a week after the expiry of two months from the month in which the income is so credited. Thus option a) is correct.

159. Whether there is a provision of issuance of consolidated certificate?

Where more than one certificate is required to be furnished to a payee for deduction of income-tax made during a financial year, the person deducting the tax may on request from such payee, issue within one month from the close of such financial year, a consolidated certificate in Form No. 16A for tax deducted during the whole of such financial year.

160. Whether deductor is supposed to file any annual return with the authorities?

Annual return of deduction of tax at source under Sec. 1940 from payment made to contractors and sub-contractors is required to be submitted in Form No. 260.

161. Whether there is a time limit of filing the annual return with the authorities?

Annual return of deduction of tax at source under Sec. 194C from payment made to contractors and sub-contractors is required to be submitted before the last day of the month ‘June‘, immediately following the previous year in which the deduction was made.