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TDS Applicability on Hire Charges on Vechiles

CA.Anuj kumar sharma (Service in Public Ltd. Co.) (99 Points)

14 November 2008

Dear All,

Please clarify me that at what rate TDS needs to be deucted on Hire Charges on Vechiles, it is 2% or 10%. Lot of confusions are there on this issue.

Also clarify me whther rates are based on Light Motor Vechile(LMV) and Heavy Motor Vechile(HMV) or it depends upon the controls and rights of hiring as per the work order issued?

Please give replies on this issue. Also give rfereances of clarifications in support of your answer, if any?

Thanks in Advance,

CA. Anuj Kumar Sharma.

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6 Replies

S.Srinivasaraghavan (Chief Financial Officer and Co) (11318 Points)
Replied 14 November 2008

If 194C it is 2% plus

If 194I it is 15% plus or 20% plus asthe case may be

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CA Abhash Mishra (Chartered Accountants) (598 Points)
Replied 14 November 2008

TDS will be deducted on contract rate

CA CS Akashdeep Singh (Practicing CA) (1394 Points)
Replied 14 November 2008

TDS on vehicle hire

You had indicated that even payment for hiring of vehicles would now require tax deduction at source under Sec. 194-I, which was hitherto limited to immovable property.

But I may draw your attention to the clarification issued in Circular No.558 dated March 28, 1990 (1990) 183 ITR (St.) 158, wherein the Board has conceded that where a vehicle is given on hire along with the provision of a driver and a conductor with the remuneration for use being fixed for the number of hours such vehicle is made available, it is a service contract for carrying out the work, so that it will be covered under Sec. 194C.

It will, therefore, appear that Sec. 194-I, which will now cover amount of rent or any other payment for the use of any plant, machinery or equipment which will no doubt include vehicles, should be treated as confined to a case where vehicle alone is given on hire and not where service by running the vehicle is made available.

The circular referred to by the reader is one issued prior to the amendment to Sec. 194-I with effect from July 14, 2006, specifically making any rent or hire or any other compensation for use of plant, machinery or equipment for tax deduction under Sec. 194-I. The issue is whether it is a case of hiring out a vehicle or rendering a service by making available the vehicle.

These are two distinct contracts. There is, therefore, justification for reader's inference that, where the vehicle is made available as a matter of service, the Board's Circular No.558 dated March 29, 1990 (1990) 183 ITR (St.) 158 would continue to have application. The Circular has not been revoked. At any rate, the reasoning in the Circular would indicate that the inference drawn therein does not get superseded by the amendment, which cannot cover what is squarely a service contract for work so that in such cases tax deduction should continue to be governed by Sec. 194C and not under Sec. 194-I.

It may also be noticed that Explanation III inserted under Sec. 194C(2) deems work to include "carriage of goods and passengers by any mode of transport other than by railways". This amendment made with effect from July 1, 1995, which is subsequent to the Circular, supports the Circular and buttresses the reader's inference. Such transport contract and not mere contract of vehicle can be understood as being governed by Sec. 194C(2) Explanation III, which being a special clause should override Sec. 194-I.

Akashdeep Singh

jeevana (Auditor) (51 Points)
Replied 23 October 2009

Hello

From 1/10/2009 on wards No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the accountant 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