Section 194C: TDS Guidelines for Payments to Contractors

Section 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

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

Definitions Under Section 194C

Here are some important definitions that you need to know:

1. Work

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 per customer requisites, including material bought from the customer, not from others

2. Contractor

To deduct TDS under Section 194C, the resident contractor must perform specified work for any individual.

3. Sub-Contractor

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

When is Section 194C Applicable

Deduction under Section 194C of the Income Tax is applicable if:

Total amount of a single transaction exceeds ₹30,000
Aggregate amount paid by any specified person to a contractor in a financial year exceeds ₹75,000

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

Particulars	Case 1	Case 2	Case 3	Case 4	Case 5
Bill 1	₹35,000	₹25,000	₹50,000	₹25,000	₹35,000
Bill 2	-	-	₹30,000	₹25,000	₹30,000
Total bill in a year	₹35,000	₹25,000	₹80,000	₹50,000	₹75,000
TDS u/s 194C	Yes	No	Yes	No	Yes

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

If the single or aggregate amount does not exceed the limit
When the work done for individuals or HUFs is of a personal nature
If the payment is to a sub-contractor or contractor that is a non-resident
When the contractor submits a declaration with their PAN
When the contractor is in the business of plying, hiring, or leasing goods carriage and, in the previous year, owned fewer than 10 good carriages

TDS Rates u/s 194C

Section 194C rates for TDS depends on to whom the payment is given to. Here is a breakdown of Section 194C TDS rates:

If the payment is to individuals or HUFs, the deduction is at 1%
If the payment is to entities other than individuals or HUFs, the deduction is at 2%
If the payment is to a payee who has not furnished their PAN information, the deduction is at 20%

Time Limit to Deposit TDS Under Section 194C

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

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

Type of payer	Deposit time limit
Government or anyone on behalf of the government	Same day as the payment, without challan
Payment by anyone else done in March	By or on 30th April
Payment by anyone else in months other than March	With seven days from the end of the month in which TDS was deducted

Now that you know Section 194C rates, and other provisions, ensure that you adhere to them to avoid the penalties. Remember to regularly check the rates and other details to ensure you do not miss any amendments to the terms and conditions.

What is the TDS deduction limit u/s 194C?

Under Section 194C, TDS rates depend on the type of payee. If the payment is to a resident individual or HUF, it is 1% and 2% if it is to a resident other than an individual or HUF.

When should I deduct TDS under sec 194C?

TDS under Section 194C of the Income Tax Act applies when the payment exceeds ₹30,000 for a single transaction. It also applies if the aggregate amount in a fiscal year exceeds ₹75,000.

Who is responsible for deducting TDS under Section 194C?

Any specified person paying a resident contractor or subcontractor is responsible for deducting TDS if the bill exceeds the stipulated limit.

Should there be a written contract for deduction under Section 194C?

No, TDS deduction is permissible even if it is a verbal agreement.

What is Section 194C of TDS?

Section 194C covers TDS on contractor payments, including labour services. The TDS rate is 1% for individual or HUF contractors and 2% for others.

Which ITR is applicable for 194C?

Taxpayers should use the ITR-4 form for deductions under Section 194C. This form is for individuals and HUFs with presumptive business or professional income, including TDS on contractor payments.

Where to show 194C income?

Report income under Section 194C as "Income from Business and Profession" in your ITR. Use ITR-4 if opting for presumptive taxation, including both gross receipts and TDS deducted.