Any person responsible for paying any sum to any resident contractor for carrying out any work (including supply of labour for carrying out any work) under a contract in pursuance of a contract between contractor and person specified in clause (i) below, shall deduct income tax at the time of such payment thereof in cash or by issue of a cheque or draft or by any other mode or its credit to contractor's account or any other account, by whatever name called, whichever happens earlier.
(i) TDS by Specified Persons [Explanation to section 194C]:
The following specified persons shall be required to deduct tax at source in case the payment is made by them to any resident contractor: —
(a) the Central or State Government; or
(b) any local authority; or
(c) any corporation established by or under a Central, State or Provisional Act; or
(d) any company; or
(e) any co-operative society; or
(f) any authority constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the needs for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages or for both [e.g. CIDCO, HUDCO, etc.]; or
(g) any society registered under the Societies Registration Act, 1860 or under any such corresponding law; or
(h) any trust; or
(i) any university or deemed university; or
(j) any government of a foreign state or foreign enterprise or any association or body established outside India; or
(k) any firm;
(l) any person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, whether incorporated or not other than those falling under any of the preceding clauses, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor.
(ii) Rate of TDS for Financial Year 2019-20 and 2020-21
(a) 1% where the payment is being made or credit is given to an individual or a HUF
(b) 2% where the payment is being made or credit is to be given to any other entity.
> The rate of TDS will be 20% in all the above cases, if PAN is not quoted by the deductee.
> No surcharge, or health and education cess shall be added. Hence, TDS shall be deductible at basic rates.
(iii) Meaning of "Work" [Clause (iv) of Explanation (iv) to section 194C (7)]
"Work" shall include—
(b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting;
(c) carriage of goods or passengers by any mode of transport other than by railways;
(e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer.
(iv) Individual or HUF not to deduct lax if the payment or amount credited to contractor Lc for personal use [Section 194C (4)]:
No individual or Hindu undivided family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family.
(v) Where No Tax is to be deducted at source [Section 194C(5)]:
In the following cases tax is not required to be deducted at source:
(A) No deduction shall be made from the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor, if such sum does not exceed Rs. 30,000.
However, where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds Rs. 1,00,000 ( Rs. 75,000 up to 31.5.2016), the person responsible for paying such sums shall be liable to deduct income-tax under this section.
Thus, the tax will be required to be deducted at source where the amount credited or paid to a contractor exceeds Rs. 30,000 at one time or Rs. 1,00,000 ( Rs. 75,000 up to 31.5.2016) in the aggregate during a financial year in spite of the fact that separate contracts are entered into with that person.
(vi) Provisions for Payments and tax deducted at source to transporters [Section 194C(6) & (7)]:
No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, where such contractor owns 10 or less goods carriages at any time during the previous year and furnishes a declaration to that effect along with his Permanent Account Number, to the person paying or crediting such sum.
Further, as per section 194C (7), the person responsible for paying or crediting any sum to the person referred to in section 194C(6) shall furnish, to the prescribed income-tax authority or the person authorized by it. such particulars, in such form and within such time as may be prescribed.
(vii) Where the lax is either not to be deducted or to be deducted at lower rate [Section 197 Rule 28 and 28AA]
The assessee to whom such sum is payable may make an application in Form No. 13 for obtaining a certificate for deduction of tax at any lower rate or no deduction of tax, as the case may be.
An application by a person for grant of a certificate for the deduction of income-tax at any lower rates or no deduction of income-tax, as the case may be, under section 197(1) shall be made in Form No. 13 electronically,—
(i) under digital signature; or
(ii) through electronic verification code.
Where such certificate is given, it will be valid for such period of the previous year as may be specified in the certificate and the person responsible for paying such sum, until such certificate is cancelled by the Assessing Officer, deduct income-tax at the rate specified in such certificate or deduct no tax, as the case may be.
The certificate for deduction of tax at any lower rates or no deduction of tax, as the case may be, shall be issued except in certain cases direct to the person responsible for deducting the tax under advice to the person who made an application for issue of such certificate
However, as per section 206AA(4), no certificate under section 197 shall be granted unless the application made in Form No. 13 under that section contains the Permanent Account Number of the applicant.