[Sec 194C] TDS from payments to contractors or sub-contractors

Who is responsible for tax deduction - any person responsible for paying any sum to any resident contractor for carrying out any work (including labour for carring out any work) is pursuance of a contract between a specified person and the resident contractor is required to deduct tax at source. For this purpose, payer himself is treated as person responsible for paying any sum to contractor. if, however, payer is company, the company itself including the principal officer thereof, is the person responsible for paying to resident contractor.

Specified Person: Meaning of - Tax deductible under section 194C(1) only if payment is made in pursuance of a contract between a specified person and a resident contractor. The Following are the 'Specified Person' for this purpose :

• The Central Government or any Statement Government
• any local authority
• any corporation established by or under a central, state or provincial Act
• any company
• any co-operative society
• any authority constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying eh need for housing accommodation or for the purpose of planning, development or improvement of cities towns and villages, or for both
• any society registered under the societies registration act, 1860 or under any law corresponding to that act in force in any part of India
• any trust
• any university established or incorporated by or under a central, state or provincial act and an institution declared to be a university under section 3 of university grants commission act 1956
• any foreign Government or a foreign enterprise or any association  or body established outside India
• any firm
• any individual or HUF whose books of account are required to be audited under section 44AB(a) / (b) during the immediately preceding financial year and sum credited / paid is not exclusively for personal purposes
• with effect from 01 June 2008 AOP/BOI whose books of accounts are required to be audited under section 44AB(a)/(b) during immediately preceding financial year

When Tax has to be deducted at source - tax is to be deducted either at the time of credit of such sum to the account of payee or at the time of payment thereof in cash or by issue of cheque or by any other mde whichever is earlier

for this purpose any sum credited to any account, whether called "Suspense Account" or by any other name, in the books of account of the payee, is treated as credit of such income to the account of the payee.

Consideration / sum exceeding a particular sum is subject to tax deduction at source - The provisions are given below:

Petty Cases - to avoid tax deduction in petty cases, tax is required to be deducted at source where the amount credited or paid to a contractor or sub contractor exceeds Rs. 30,000/- in a single payment or credit or Rs. 75,000/- in the aggregate during a financial year. In other words, tax is not be deductible under section 194C if the following two conditions are satisfied -

a. the amount of any (single) sum credited or paid (or likely to be credited or paid) to the contractor or sub       contractor does not exceed Rs. 30,000/- and
b. the aggregate of the amounts of such sums credited or paid (or likely to be credited or paid) during the    
    financial year does not exceed Rs. 75,000/-

If payment recipient is a transport operator and furnishes his PAN to the deductor, tax is not deductible with effect from October 1 2009.

Who is Contractor - A "Contractor" is one who makes an agreement with another to do a piece of work, retaining in himself control of the means, methods and the manner of producing the result to be accomplished, neither party having the right to terminate the contract at will.
Sub-contractor is one who takes portion of contract from principal contractor or another sub-contractor.

Meaning of work contract - Provision of 194C relating to the tax deduction from payment to contract/sub-contractor are applicable only where contract is either a "work contract" or a contract for supply of labour for works contract. Theses provisions are, therefore, not applicable for payments made under contract of sale of goods.

"work" shall also include a few servies [explanation III to sec 194C]

• Advertising
• broadcasting and telecasing including production of programmes for such broadcasting or telecasting
• carriage of goods and passengers by any mode of transport other than by railways
• catering
• manufacturing & supplying a product according to the requirement or specification of a customer by  using material purchased from such customer. However, it will not include if material is purchased other than such customer
• 
  

[Sec 193] Deduction of Tax at source from interest on securities

Any person responsible for paying any interest n securities to a resident is required to deduct income tax at source at the rates in force.

Time of Deduction

Tax has to be deducted at source at the time of payment or at the time of credit to the account of payee or transfer to interest payable account or suspense account, wchichever comes earlier. However, tax cannot be deducted until identity of the person in whose hands it is includible as income can be ascertained-Industries Development Bank of India vs ITO [2006] 10 SOT 497 / 104 TTJ 230 (MUM)

Securities Interest on which is not subject to tax deduction

1. Debentures issued by any institution or authority or any public sector company or co-operative society (including a co-operative land mortgage bank or a co-operative land development bank) notified by the Central Government.
2. any security of the Central /state Government [However, from 01 June 2007 interest exceeding Rs. 10,000/- payable during a financial year on 8% Savings (Taxable) Bonds 2003 (Popularly known as relief bonds) will be subject tot the tax deduction at source irrespective of date of investment
3. Securities beneficially owned by the life insurance corporation of India or the General Insurance Corporation of India or to any of the four companies formed by virtue of the schemes framed under section 16(1) of the General Insurance Business (Nationalization) Act 1972 or any other insurer
4. with effect from 01 June 2008 any listed demat security

Scheme of Tax Deducted at Source

Scheme of Tax Deducted at Source

under the scheme of tax deduction at source (TDS), persons responsible for making payment of income, covered by the scheme, are responsible to deduct tax at source and deposit the same to the Government's treasury within the stipulated time. The recipient of income gets only the net amount (after deduction of tax at source) and the amount deducted at source is adjusted against his final tax liability.

Payments covered by TDS Scheme

TDS Scheme covers payments like 

• Salary (Resident or Non-Resident
• Payments other than salary to resident such as Interest, Dividend, Rent, Commission/Brokerage, Lottery Winnings, Winnings of races, Technical / professional fees, Royalty, Compensation etc
• Payments to non-residents / foreign companies.

TDS Rates for the financial year 2013-14

Sr no.	Section of Act	Nature of Payment	Cut off Amount	Rate %
				HUF/ Individual	Others
1	192	Salaries		Average Rate
2	193	Interest on Debentures	5000	10%	10%
3	194	Deemed Dividend	-	10%	10%
4	194A	Interest other than Int. on Securities (by Bank)	10000	10%	10%
5	194A	Interest other than Int. on Securities (by Others)	5000	10%	10%
6	194B	Lottary / Cross Word Puzzale	10000	30%	30%
7	194BB	Winning from horse races	5000	30%	30%
8	194C (1)	Contracts	30000	1%	2%
9	194C (2)	Sub-Contracts / Advertisments	30000	1%	2%
10	194D	Insurance Commission	20000	10%	10%
11	194EE	Payments out of Deposit under NSS	2500	20%	-
12	194F	Repurchase of units by MF/UTI	1000	20%	20%
13	194H	Commission or Brokerage	5000	10%	10%
14	194G	Commission on Sale of Lottary Ticket	1000	10%	10%
15	194I	Rent (Land & Building) Furniture & Fittings	180000	10%	10%
		Rent (Plant & Machinery), Equipment	180000	2%	2%
16	194IA	TDS on immovable property other than agriculture land (w.e.f. 01.06.2013)	50 Lakh	1%	1%
17	194J	Professional / Technical Charges / Royalty & Non-Compete Fees	30000	10%	10%
18	194J(1) (ba)	any remuneration or commsion paid to director of the company (from 1.07.12)	NIL	10%	10%
19	194 LA	Compensation on acquisition of immovable property	200000	10%	10%

Note: 

1. Yearly Limit u/s 194C: Where the aggregate of the amounts paid/credited or likely to be paid/credited to Contractor or Sub-contractor exceeds Rs.75,000 during the financial year, TDS has to be deducted u/s 194C.
2. TDS at higher rate ie., 20% has to be deducted if the deductee does not provide PAN to the deductor.(read detail u/s 206AA)
3. No TDS on Goods Transport :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.(read details here No TDS on Goods Transport )
4. Surcharge on tax is not deductible/collectible at source in case of resident individual/HUF /Firm/ AOP / BOI/Domestic Company in respect of payment of income other than salary.
5. Surcharge on TDS is applicable on payment made to non resident other than company ,if payment is in excess of one crore.(10 %)
6. Surcharge on TDS on salary is applicable if taxable salary is more than one crore @ 10 %
7. In the case of Company other than Domestic Company, (i) at the rate of two per cent. of such tax, where the amount or the aggregate of such amounts collected and subject to the collection exceeds one crore rupees but does not exceed ten crore rupees; (ii) at the rate of five per cent. of such tax, where the amount or the aggregate of such amounts collected and subject to the collection exceeds ten crore rupees.
8. No Cess on payment made to resident: Education Cess is not deductible/collectible at source in case of resident Individual/HUF/Firm/ AOP/ BOI/ Domestic Company in respect of payment of income other than salary.Education Cess @ 2% plus secondary & Higher Education Cess @ 1% is deductible at source in case of non-residents and foreign company.
9. TDS by Individual and HUF (Non Audit) case not deductible :An Individual or a Hindu Undivided Family whose total sales, gross receipts or turnover from business or profession carried on by him does not exceeds the monetary limits(Rs.100,00,000 in case of business & Rs.25,00,000 in case of profession) under Clause (a) or (b) of Sec.44AB during the immediately preceding financial year shall not be liable to deduct tax u/s.194A,194C, 194H, 194I & 194J.So no tax is deductible by HUF/Individual in first year of operations of business even sales/Fees is more than 100/25 Lakh.