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TDS on contractors

Sawan Negi (Article) (54 Points)

08 June 2009

hello freind's, can anyone tell me the accurate grounds on which we should deduct the TDS (what type of contract should be there)

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CA. Dashrath Maheshwari (TaXpert) (15103 Points)
Replied 08 June 2009

The Government’s Policy of making the assessee to pay tax as they earn income has resulted in various scheme of tax collection. T.D.S. is one of them are major one , for collection of tax .The main purpose for introducing T.D.S. was to bring more and more people into the tax net. The net of T.D.S. was enlarged as it is very economical and beneficial way of collection of tax. Though Government claims that the direct tax laws are simplified for better compliance and larger collection of tax but as far as T.D.S. is concerned it is very much complex ,as is it not possible to know what law is applicable at a particular time and to make situation more worse, frequent changes in the section , rules and procedure are made. Section 192 to 206B of the income tax act deals with the topic T.D.S. It is interesting to note that payer has to do honorary job by acting as an agent to the government to collect tax from the payee and pay to the Government.

Scope and Application of Section 194C Section 194C covers two types of contracts which are 1)Payment to Contractor ,and 2) Payment to Sub-contractor .

Payment to contractors : Any of the following “Person responsible for paying any sum of any resident contractor for carrying out any work including supply of labour for carrying out any work. In pursuance of a contract between contractor and any of the following person shall at the time of credit of such sum to the accounts of the contractor , or to any other account in the books of payer , or at the time of payment whichever is earlier shall deduct tax at source.

The term “person” means and includes the following : The central government or any state government . Any local authority .Any corporation established by or under a central ,state or provincial act. Any authority constituted in India by or under any law engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities town and village or 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 institution declared to be a university under section of the university grants commission act 1956.

Payment to sub contractor : Any contractor person (other than individual or Hindu undivided family ) responsible for paying any sum to any resident sub- contractor in pursuance of a contract with the sub-contractor for carrying out, or for the supply of labour for carrying out, for carrying out the whole or any part of the work undertaken by the contractor or for the supplying whether wholly or partly any labour which the contractor has undertaken to supply shall, deduct tax at the time of credit of such sum to the account of the sub-contractor or to any other account in the books of payer or at the time of payment whichever is earlier.

Following contracts are covered u/s . 194 C (List is not exhaustive, but it only gives broad outline of the contract which are liable for T.D.S. u/s.194 C) 1) Works contracts. 2) Labour contracts. 3) Combination of works and labour contracts.4) Transportation contracts involving supply of labour for loading and unloading. 5) Contract for supply of labour for loading and unloading.6) Contract for hire of cars /buses etc. which includes hire charges and where driver cleaners and maintenance are provided by the contractor .

Which contracts are not covered u/s.. 194 C (List is not exhaustive ) 1) Contract for sale of goods by the contractor. 2) Contract for rendering professional services.3) Transportation contract where element of labour is very less. 4) Contract to hire of cars where there is no involvement of any supply of service .5) Payment made to bank for discounting bill collecting / recovery payment through cheque , draft, opening and negotiating letter of credit etc. 6) work executed under national rural employment program and rural landless employment guarantee program.

When payer makes payment to any payee if it is government , the R.B.I., any mutual fund specified v/s. 10 (23D) , a corporation establishment by or under a central act which is exempt from income tax by virtue of any law for example :- L.I.C., U.T.I., etc. Then no deduction of tax at source is required to be made (v/s. 196 as T.D.S provision are not applicable to them .

**DM

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Sorabh Gupta (Manager ( Taxation )) (877 Points)
Replied 08 June 2009

Dera Sawan

194C is the section for TDS oc contractor. It covers Civil contractor , mechanical contractor , advertisement contract , transporter , work contractor etc...........

For any more details you may refer the recknor..............

Sawan Negi (Article) (54 Points)
Replied 08 June 2009

Originally posted by :Mr. Dashrath Maheshwari
"	The Government’s Policy of making the assessee to pay tax as they earn income has resulted in various scheme of tax collection. T.D.S. is one of them are major one , for collection of tax .The main purpose for introducing T.D.S. was to bring more and more people into the tax net. The net of T.D.S. was enlarged as it is very economical and beneficial way of collection of tax. Though Government claims that the direct tax laws are simplified for better compliance and larger collection of tax but as far as T.D.S. is concerned it is very much complex ,as is it not possible to know what law is applicable at a particular time and to make situation more worse, frequent changes in the section , rules and procedure are made. Section 192 to 206B of the income tax act deals with the topic T.D.S. It is interesting to note that payer has to do honorary job by acting as an agent to the government to collect tax from the payee and pay to the Government. Scope and Application of Section 194C Section 194C covers two types of contracts which are 1)Payment to Contractor ,and 2) Payment to Sub-contractor . Payment to contractors : Any of the following “Person responsible for paying any sum of any resident contractor for carrying out any work including supply of labour for carrying out any work. In pursuance of a contract between contractor and any of the following person shall at the time of credit of such sum to the accounts of the contractor , or to any other account in the books of payer , or at the time of payment whichever is earlier shall deduct tax at source. The term “person” means and includes the following : The central government or any state government . Any local authority .Any corporation established by or under a central ,state or provincial act. Any authority constituted in India by or under any law engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities town and village or 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 institution declared to be a university under section of the university grants commission act 1956. Payment to sub contractor : Any contractor person (other than individual or Hindu undivided family ) responsible for paying any sum to any resident sub- contractor in pursuance of a contract with the sub-contractor for carrying out, or for the supply of labour for carrying out, for carrying out the whole or any part of the work undertaken by the contractor or for the supplying whether wholly or partly any labour which the contractor has undertaken to supply shall, deduct tax at the time of credit of such sum to the account of the sub-contractor or to any other account in the books of payer or at the time of payment whichever is earlier. Following contracts are covered u/s . 194 C (List is not exhaustive, but it only gives broad outline of the contract which are liable for T.D.S. u/s.194 C) 1) Works contracts. 2) Labour contracts. 3) Combination of works and labour contracts.4) Transportation contracts involving supply of labour for loading and unloading. 5) Contract for supply of labour for loading and unloading.6) Contract for hire of cars /buses etc. which includes hire charges and where driver cleaners and maintenance are provided by the contractor . Which contracts are not covered u/s.. 194 C (List is not exhaustive ) 1) Contract for sale of goods by the contractor. 2) Contract for rendering professional services.3) Transportation contract where element of labour is very less. 4) Contract to hire of cars where there is no involvement of any supply of service .5) Payment made to bank for discounting bill collecting / recovery payment through cheque , draft, opening and negotiating letter of credit etc. 6) work executed under national rural employment program and rural landless employment guarantee program. When payer makes payment to any payee if it is government , the R.B.I., any mutual fund specified v/s. 10 (23D) , a corporation establishment by or under a central act which is exempt from income tax by virtue of any law for example :- L.I.C., U.T.I., etc. Then no deduction of tax at source is required to be made (v/s. 196 as T.D.S provision are not applicable to them . **DM	"

thank u so much Mr. maheshwari sir and mr. gupta sir....... for the reply ......... one thing more sir, that the new form 17 will be enforceable from june or july and what is the UTN

CA. Dashrath Maheshwari (TaXpert) (15103 Points)
Replied 08 June 2009

UTN will be provided by NSDL in due course.
till now no software can be there as UTN system is not cleared by the department.
Hope that, soon the matter will be resolve.

form 17 will be enforceable from July

AMEET KIMBAHUNE (Consultant) (87 Points)
Replied 08 June 2009

Originally posted by :Sawan Negi
"	hello freind's, can anyone tell me the accurate grounds on which we should deduct the TDS (what type of contract should be there)	"

Contracts have a wide scope....in fact every arrangement is more or less a contract...the 194C section refers to more of labour related contracts. Since skilled work like engineers, architects, etc can be covered by 194J - fees for professional or technical services. Instead of giving a general opinion could you quote the transaction subject to query?

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CA.Nikhil Gupta (PRACTICE) (768 Points)
Replied 09 June 2009

it is Unique Transaction Number for the TDS deducted by employer with a motive of hassle free and quick reconcillation of tds deposited.

Sawan Negi (Article) (54 Points)
Replied 09 June 2009

PLEASE......... CLARIFY THE DIFFERENCE BETWEEN CONTRACTOR AND PROFESSIONAL ......IS THE CHARGES RELATED TO SOFWARES (INTERNET WORLD COMNET, SYSTEMS AND SOFTWARE SOLUTION ETC.) SHOULD BE TAKEN UNDER CONTRACTOR OR PROFESSIONAL..........