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Section 194C applicability

27 March 2023

Whether TDS is required by a government company receiving services from a government company in the nature of contract under which service charge is paid as per MoU signed by them.

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6 Replies

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (177972 Points)
Replied 27 March 2023

As per Section 196 of Income tax act, 1961, no deduction of tax shall be made by any person from any sums payable to—

1. Government (i.e. State and Central Government)

2. RBI

3. Corporation established under central act which is, under any law for the time being in force, exempt from income-tax on its income,

4. Mutual fund specified under section 10(23D)

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CA Rakesh Ishi (Working at Private Company) (8202 Points)
Replied 27 March 2023

TDS under section 194C of the Income Tax Act is applicable on payments made by a person (including a company, partnership firm, or any other entity) to a resident contractor or sub-contractor for carrying out any work (including supply of labor and materials) in the course of business or profession.

However, the provisions of section 194C do not apply to payments made to the government, unless the payment is made to a local authority or a municipal corporation. Therefore, if the payment is being made by one government department to another government department within India, TDS under section 194C would not be applicable.

Rajnish Agrahari (26 Points)
Replied 27 March 2023

Sir, but we know that when we buy a property from societies established by the government like the Lucknow development authority we deduct tax on the same. As per sec 196, we shouldn't have done it as purchase of land from Lucknow Development Authority is a transaction of the nature in which payment is made to Government entity.

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (177972 Points)
Replied 27 March 2023

LDA is not government organization. We need to check the status of organization in each case independently. If it passes the criteria as per the sub clause.... "Corporation established under central act which is, under any law for the time being in force, exempt from income-tax on its income" ....

If it passes the test, TDS will not be applicable; otherwise deduct.