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TDS u/s 194C

CA. Rashi Goyal (Chartered Accountant) (512 Points)

03 December 2009

What is the TDS rate in case of vendor who is providing CAB facility to a company.

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10 Replies

Ram Avtar Singh (Nagari Sultanpur U.P.Delhi) (14497 Points)
Replied 03 December 2009

The provisions relating to deduction of tax at source (TDS) have assumed paramount importance in the past few years. The legislature has also introduced provisions for disallowance of expenditure if the TDS provisions are not complied with.

Companies are putting in additional time and efforts to ensure that they are on the right side of the law.

The provisions contained in Section 194-I, which deal with deduction of tax at source on rent, were amended with effect from July 13, 2006, whereby the definition of rent has been enlarged.

Pursuant to the amendment, rent paid for leasing/sub- leasing/tenancy of machinery, plant and equipment is also liable for TDS.

Companies generally provide cars to their executives, employees and guests. Often these cars are taken on hire from a car hiring agency.

In such arrangements, the issue arises whether payment made to the agency for hiring of the car is to be considered as rent and tax thereon to be deducted as per the provisions of Section 194-I or whether the payment is to be considered as that to a contractor and tax thereon deducted under Section 194C?

TDS rate

It is worthwhile to mention that the basic TDS rate for rent under Section 194-I is 10 per cent whereas for payment to a contractor under Section 194C is 2 per cent.

For deciding whether the payment of hire charges by the employer to the agency attracts deduction of tax under Section 194-I or Section 194C, the terms of the contract between the parties need to be examined.

If the agreement is for leasing of the car per se, the payment would attract tax deduction under Section 194-I.

However, if the agreement is for a service of transportation to be provided by the agency, the payment would attract tax deduction under Section 194C (the definition of the term ‘work’ includes inter alia carriage of goods and passengers by any mode of transport).

Control matters

Another important factor to be considered is whether the car is under the control of the company or the agency.

In the former case, the payment would generally constitute rent, whereas in the latter, the payment would be for carriage of passengers.

Guidance on the appropriate rate to be applied can also be taken from Circular No. 558 dated March 28, 1990, issued by the Central Board of Direct Taxes, which deals with deduction of tax at source from payments by a State Transport Corporation to private bus owners.

Some of the relevant criteria indicated in the Circular are provision of a driver, keeping the bus (in our case, the car) road worthy, payment based on usage, etc., which indicate that the contract was a service contract and the provisions of Section 194C are applicable.

In sum, if a chauffeur-driven car is hired for one day, Section 194C would be attracted as the payment is essentially for carriage of passengers.

On the other hand, if a car is leased for, say, a year and is under the control of the company and it is the company’s responsibility to run and maintain it, the payment would be in the nature of rent and Section 194-I would be applicable.

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CA. Rashi Goyal (Chartered Accountant) (512 Points)
Replied 03 December 2009

Thanks Ram.

But in our case the cab facility is not not on regular basis, it is taken when required. The cab provider also mentiones his PAN on the invoice, now the query is whether TDS has to be deducted or not and if TDS has to be deducted than at what rate.

Ram Avtar Singh (Nagari Sultanpur U.P.Delhi) (14497 Points)
Replied 03 December 2009

TDS to be deduct 1% on Individual under sec 194C.if amount exceed 20000/ in singal bill or 50000 in a annual.

CA. Rashi Goyal (Chartered Accountant) (512 Points)
Replied 03 December 2009

Would this be not covered under the definition of transporter who are exempted from tax deduction if they mention their PAN no. in the invoice w.e.f 01.10.09

sudhir rawal (B.COM/PCC/ARTICLE/'O'LEVEL) (314 Points)
Replied 03 December 2009

it would be covered tds u/s 194 c because of cab is providing by vendor and cab is always manufacturing as per specification of customer

and

section 194-C covers the contract for "manufacturing as per specification of customer"

that's why it covers in 194-C

TDS to be deduct 1% on Individual under sec 194C.

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Kamal Jain (FCA) (200 Points)
Replied 04 December 2009

Dear Ram,

You have replied Rashi's querry very nicely.

Pls enlighten further on her next querry whether cab service provider can be considered as transporter within the meaning of the TDS provisions.

Thanks in advance.

Ram Avtar Singh (Nagari Sultanpur U.P.Delhi) (14497 Points)
Replied 04 December 2009

Pan quotaed TDS Exeption from 1.10.09 only for Goods Transport by Road. Not for motor Vehicle transporter.

Aditya Maheshwari (CA in Practice) (35867 Points)
Replied 04 December 2009

Yes if a valid Pan is quoted TDS Exeption from 1.10.09 only for Goods Transporter as defined u/s 44AE and Not for motor Vehicle transporter.

manish (Newly Qualified Chartered Accountant) (22 Points)
Replied 16 January 2010

I Have one Question in My mind can we adjust TDS deducted on Payment basis before 1.10.09 @ 2.266% but bill was made after this date when tds rate is 1%......... any one help me?

Ajay kumar (article) (40 Points)
Replied 28 January 2011

thank you Ram and Aditya,

the confusing part which i am not able to understand correctly is, does hiring a cab by a company for the use of its employees whenever required, without any contract betweent the company and the cab provider and mentioning of PAN number on the invoice, gives exemption from decuction of TDS.

Sec 194C talks about exemption of TDS for transporter, does transportation include movement of people in cab?