Upgrade and Save: Get 10% OFF on CAclubindia Pro Subscription! Use Code: SAVE10 Subscribe Now!

TDS on subcontractor

Himanshu (Manager) (45 Points)

27 February 2010

We are executing a offshore job under a subcontract.

The job is executed by us by bringing our machines and some freelancers divers. Will the client while making our payments will determine that whether the persons brought by us are professional [if he does this then he will deduct TDS at 10% under professional services] OR is he liable to deduct TDS applicable to subcontractors thus making a deduction of only 2%

Reply
Follow
Share

9 Replies

Sanjay (CA Final n CS Final) (324 Points)
Replied 28 February 2010

Originally posted by : Himanshu
	We are executing a offshore job under a subcontract. The job is executed by us by bringing our machines and some freelancers divers. Will the client while making our payments will determine that whether the persons brought by us are professional [if he does this then he will deduct TDS at 10% under professional services] OR is he liable to deduct TDS applicable to subcontractors thus making a deduction of only 2%

In my view ur client will deeduct TDS @ 2% U/S 194C & U HAVE TO DEDUCT TDS @ 10% U/S 194J ON PAYMENT TO PROFESSIONAL FEES IF EXCEED RS 20000.

Upgrade to CAclubindia Pro. Subscribe Now!

CA. Abhishek K. Pandey (Manager (Advance)) (901 Points)
Replied 28 February 2010

In my view it should be @ 2%, since its subcontract. Wait for oyher posts.

Chintan Shah (-) (534 Points)
Replied 28 February 2010

Dear Himanshu,

Since you are rendering professional services to your client, even if you render such services by yourself or by hiring anyone the nature of services doesnot change. The Act is very clear that if the services rendered is in nature of professional services, TDS is to be deducted u/s 194J @ 10%. There is no other condition in this regard. The services you are rendering since are professional in nature, TDS on same cannot be deducted u/s 194C. It has to be deducted u/s 194J.

For example, if I were an advocate, even if I render services by hiring other advocates be it full time or be it consultants my clients would deduct TDS @ 10% since for them what is important to consider is what is the nature of services that i am rendering to them. How I render that services to them is irrelevant.

Therefore, your client would deduct TDS @ 10% and since the persons hired are freelancers, the retention fees or consultancy fees payable to them you would have to deduct TDS @ 10%. However if there is an employer employee relationship, than TDS on salary u/s 192 has to be deducted.

Regards

Chintan

Himanshu (Manager) (45 Points)
Replied 28 February 2010

How do we determine that the service provided is a professional one.

This service is not defined under services clubbed as professional services.

and since i am the subcontractor doesnt that makes any difference in fixing tax liability

Chintan Shah (-) (534 Points)
Replied 28 February 2010

Dear Himanshu,

What i am telling is the legal position. To determine whether the services rendered by you are professional or not you will have to go thru the services notified by the Board to be professional services. If you are rendering professional services than Section 194C is inapplicable. It doesn't matter if you are a contractor or sub contractor if the services rendered by you are professional in nature. For example, If I am a CA, and I get an outsourcing assignment from another CA firm whose client it is, than even if I become a sub contractor as such but since I am rendering professional services the CA firm will deduct TDS u/s 194J and not u/s 194C..

Please do mention what type of offshore job you are doing... Than i ll be able to tell you exactly whether the same is professional services or technical services or not.

Regars,

Chintan.

Upgrade to CAclubindia Pro. Subscribe Now!

Himanshu (Manager) (45 Points)
Replied 28 February 2010

We provide underwater diving services for laying and repairing pipelines. TDS deducted is on salaries of divers which we are charging to the contractor

Chintan Shah (-) (534 Points)
Replied 02 March 2010

Hi Himanshu,

Since the services you are rendering are technical in nature (since it involves special skills i.e. diving skills) TDS is deductible by your client from payments made to you is u/s 194J being TDS on technical services. Tax won't be deductible as professional services because such profession is not a specified profession niether u/s 194J nor Section 44AA. Hence TDS rate in both cases is 10%.

Regards,

Chintan