TDS on Payments to Contractors – TDS Rates

There is a duty of payer to deduct TDS u/s 194 C on making of payment/credited to contractor. Contractor includes a sub-contractor. In this article we will discuss about the TDS deduction and related procedure on payment to contractors & sub contractors.

Contractor and Sub-contractor

Giving service to someone for the price is called contract. Service provider will be called contractor. The contractor’s duty is to complete the task for which an agreement has executed. When contractor further enters into a contract with another person to do the jobs completely or partly that is called sub-contractor.

It may be any work, deduction u/s 194C will be applicable when the contracts are made for any work. The following are the positions when the liability will arise.

Any works examples like broadcasting, advertisement, carriage of goods, catering, any services, You can find more examples by visiting this link;

When payer will deduct TDS/Time to deduct TDS?

Payment should be more than Rs. 30,000 for one contract/each contract or Rs.75000 in total for all the contracts. The deduction will be made when the payment credited or paid.

When the amount exceeds Rs. 30,000 then the deduction will be made on earlier amount also. The section 194 C is applicable for resident contractor only. For non-resident the section 195 will be applicable.

On which amount TDS has to be deducted?

TDS will be deducted on the amount credited or paid for the services used. However, in the case of manufacturing or product in which the services have involved then the amount to deduct TDS is only for service used, if it is mentioned in the invoice. However, if there is not a separate amount for service, then the TDS will be deducted generally on the total amount of invoice.

Who will deduct TDS?

On the above payment TDS will be deducted but by whom? The following persons will deduct TDS.

• A state or central Government, local authority or corporation under the state or central Government
• Company
• Society/Co-operative society
• Trust/Authority for development of areas
• Foreign enterprises
• University
• Firm
• Individuals or HUF or AOP or BOI

Individual/HUF/AOP/BOI who has gross receipt/Sale/Turnover

• For business: more than Rs. 1 crore (w.e.f.1/4/2012, A.Y.2013-14) Rs. 60 Lakh for A.Y. 2012-13.
• For profession: Rs. 25 Lakh (w.e.f.1/4/2012, A.Y.2013-14), Rs. 15 Lakh for A.Y. 2012-13

Examples of work contracts

Bank charges, oral contracts, piece rate contracts, advertisement contract, broadcasting contracts, travel agents, airlines, clearing & forwarding contracts, courier agencies, catering contracts, Professional & technical services and other contracts.

No TDS deduction on Payment to Transporters if PAN furnished

If the operators furnish his PAN to the deductor then deductor should not deduct TDS. But deductor will give the valid ‘PAN’ detail in the ‘Quarterly returns of TDS’ of the deductees within the time limit to get the exemption. It will be done only in the case of transporters, who engaged in the business of plying, hiring or leasing goods carriages.

Rates of TDS

The rates of TDS for making payment to contractors or sub-contractors for A.Y. 2013-14 are given below:

• If payment make to individuals/HUF – 1% (SC-NIL, EC & SHEC-NIL)
• If payment make to other person – 2% (SC-NIL, EC & SHEC-NIL)

Note: TDS shall be deducted @ 20% in case a deductee fails to furnish his Pan to the deductor (Sec. 206AA)

TDS will be deducted on Total amount of Bill including service Tax

If services of contractor are liable for service tax, the invoice’s total amount includes the service tax, then the deductor will deduct TDS on total amount of invoice including service tax also.