TDS ON CONTRACTUAL SERVICES

TDS — TAX DEDUCTED AT SOURCE: –

TDS is required to deducted at time of making payment and there are different types of payments viz. salary, professional services, contractual services, interest, rent etc. But here we will discuss only TDS on contractual services.

TDS on Contractual Services: – Section 194C of the Income Tax Act, 1961 deals with the provisions related to TDS on contractual Services.

WHO IS LIABLE TO DEDUCT: –

Any person responsible for paying any sum to any resident contractor for carrying out any work (which includes supply of labour for carrying out that work also) in pursuance of any contract is required to deduct tax.

Exception: –

• All assessee viz. Central Government, Local Authority, company etc are required to deduct tax at source except INDIVIDUAL/HUF (who are not required to get their accounts audited u/s 44 AB (a)/(b)).
• Payment by Individual/HUF to a resident contractor for personal purposes is also not required to deduct tax at source.

WHEN TO DEDUCT: –

Tax has to be deducted at the time of credit or payment whichever is earlier. Credit here means credit entry passed in the books of account. This entry may be passed either directly crediting the account of contractor/subcontractor or through some dummy/suspense account. TDS deduction date will either this credit date or payment date (whether by cheque or cash) whichever is earlier.

The tax has to be deducted if the total amount credited/paid during the year exceeds Rs. 100000/- or single transaction amount exceeds Rs. 30000/-

Exception: –

• if the amount credited or paid does not exceed Rs. 100000/- (Rs. One Lac only) then no TDS provided single transaction does not exceed Rs. 30000/- (Rs. Thirty Thousand only)
• In case of Small Transport Operator if number of goods carriages does not exceed 10 and he furnishes declaration regarding not owning 10 or more good carriages along with his PAN details. Any deductor making payment under this provision is required to provide PAN Details to department through quarterly filing of Return in form No. 26Q.

RATES OF TAX DEDUCTION AT SOURCE

Section 194C does not make any difference between contractor/sub-contractor for the purpose of deduction of Tax at Source but it makes difference on the basis of payee’s character as per Income Tax Act viz. Individual/HUF/Firm or company etc. It provides that if

• the recipient is Individual/HUF then Tax has to be deducted @ 1% of the amount credited/paid (Surcharge or Health/Education Cess Not applicable) meaning only 1% needs to be deducted.
• for any other Recipient Tax has to be deducted @ 2% of the amount credited/paid
• (Surcharge or Health/Education Cess Not applicable) meaning only 2% needs to be deducted.

In simple terms rate of tax is not dependent on Deductor but it is dependent on the status of Payee. PAN is compulsory. If recipient of payment is unable to provide PAN then Tax @ 20% will be charged on amount credited or paid to recipient.

DEPOSITION OF TDS WITH GOVERNMENT AND FILING OF QUARTERLY STATEMENT

The tax so deducted by the Deductor has to be deposited with the Government of India through ITNS Challan No. 281 by 7th of the Next Month (in the case of TDS for March month relaxation is being provided to deposit it up to 30th April) . The most important information required at the time of depositing the challan is TAN (Tax Deduction Account Number) of the Depositor. While depositing the Challan PAN Details of Payees are not required as challan is deposited for the total sum deducted for all Contractual Payments.

In addition to this Deductor is required to file Quarterly TDS Statement with Department wherein all the details regarding Name, Address, PAN, Date of payment/Credit, Amount Paid and TDS deducted is being provided by the Deductor and on that basis Tax Departments issues Form 16A for each Payee and these details are also being reflected in the Form 26 AS of the particular Payee. This return needs to be filed within one month from the last day of the quarter but for March Quarter Return relaxation has been provided for 2 months instead of one month.

INTEREST ON DELAY IN DEPOSITION OF TDS

There arises two circumstances viz.

• Either tax not deducted or less deducted: – In this case interest @ 1% per month for each month or part of the month will be charged from the date on which tax needed to be deducted to the date of actual deduction
• Tax has been deducted but not paid to government account: – Interest @ 1.5% per month for each month or part of the month will be charged from the date of deduction to the date of payment