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TDS on Assets

Hemant Jain (Article Assistant) (107 Points)

04 December 2007

Dear Friends,

If a contract is given to a company for installing a new asset.TDS is deducted on the labour bill charged by the Contractor.

What about the bill raised of the materials which have been installed for the Asset.

Is TDS applicable for it (since we have given a contract for whole of asset) ? If Yes, then on what basis? What will be the case for non deduction ?

If TDS is not applicable then why ?

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13 Replies

manoj (Articled Student) (66 Points)
Replied 04 December 2007

dear friend ur question is not clear it is silent in many cases i have to make many assumptions to answer your querry.

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K V Subba Rao (Service) (2708 Points)
Replied 04 December 2007

Collect bills seperately for materials and labour

Hemant Jain (Article Assistant) (107 Points)
Replied 05 December 2007

I had heard that if TDS is not deducted on the total bills of the contractor, then the company cannot charge depreciation on the asset. Is it applicable for the material bills ? where can i refer for the same?

Jagrut Shah (Chartered Accountant) (80 Points)
Replied 05 December 2007

Dear Hemant, Ur question is not much clear. But still i give answer of ur query in following way. TDS is deducted on labour charges charged by the contractor. On material there is no TDS. But one thing i clear here that in invoice the bifurcation of material amount and labour amount is required. Otherwise senario will change.

(Guest)

Presently in many companies separate bills are prepared for Labour charges & Material Supplies by there contractors, as per Law also there is a ratio of 67: 33 for Labour Charges & Material Supply, this is used for Service tax charge by Professional, I think this may be use for TDS also.

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Vk Duggal (320 Points)
Replied 07 December 2007

if it is lumsum contract then tds is to be deducted on the whole contract value including material, labour and taxes. if there are separate contracts for supply of material and erection and installations and bills and payments are made separately contract wise then tds will be applicable on erection and installations. please note this will not be applicable if the contractor is a foreign company. for foreign company it has to go theough the process of section 195 and get rate of tds instead of tds u/s 194c

(Guest)

We have received a bill from Ravindu Motors Pvt Ltd for servising a car which has both material and labour clubbed in the same bill. All these days we used to deduct TDS on the total bill. Now they are arguing that even though it is clubbed in the same bill bifurcation of material and labour is provided so only on labour tds has to be decucted? Please suggest us in this regard? matter is urgent

Hari Venkata Ramana (M.Com, AICWA) (124 Points)
Replied 19 April 2008

Applicability of TDS U/s 194 (C) will arise if a contract is entered for asset building. This we call as works contract under VAT where supply of Material and labour is involved. You need to recover TDS U/s 194(c) @ 2% Plus Surcharge if applicable, Educational Cess @ 2% on TDS & SC and Higher Education Cess @ 1% on TDS & SC. You have to recover at above rate on gross bill. You have to recover TDS, even if you donot pay it now but account it as laible (Making provision) in your books of Accounts. The contractor need not bother for recovery on gross bill, as the recovery of TDS can be set off against ultimate IT liability based on Form 16 given by you. I hope this will give clarity to your problem. good luck.

Hari Venkata Ramana (M.Com, AICWA) (124 Points)
Replied 19 April 2008

But I can say that, if you donot deduct TDS and Remit it to the Government, You cannot claim it as business expenditure (Whether u call it as capital or Revenue Expenditure)

Hari Venkata Ramana (M.Com, AICWA) (124 Points)
Replied 19 April 2008

But I can say that, if you donot deduct TDS and Remit it to the Government, You cannot claim it as business expenditure (Whether u call it as capital or Revenue Expenditure)

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Hari Venkata Ramana (M.Com, AICWA) (124 Points)
Replied 19 April 2008

The contention of the service station that TDS is to be deducted only on service portion appears to be correct, as clear bi-furcation is available. U need not deduct on spares portion since it is sale.

j pooja jain (ca final) (28 Points)
Replied 20 October 2010

hey can any one say me that if an asset is purchased and the bill consists of cost of asset and amc then tds is deducted only on amc or total bill value .

example : total bill value : 5lk

cost of asset : 3 lk

amc : 2lk

tds on 2 lk or 5lk

@ what rate

pls do reply as soon as possible