TDS on Penality

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

03 March 2010 As per Agreement with contractor he is liable to pay penality in case not completing the contract on time. I want to know the penality is liable to TDS or Not? If Yes How to calculate the TDS?

Shyam Lal Naik

Shyam Lal Naik (Expert)
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03 March 2010 Penalty per se is not exigible to TDS, as it is not a payment for carrying out any work.

Amount paid or credited is the base for TDS deduction u/s 194C.

If the Gross Amount is credited to the account of the contractor and the amount of penalty is debited there after, indirectly, the amount of penalty gets covered.

On the other hand, if the net amount is credited to the account of the contractor, the penalty gets excluded.