SECTION 194C : TDS on Contractors

Table of Contents

TDS on Contractors

Introduction

194c is a retail store chain that specializes in selling collectible coins, currency, and related items. The company was founded in 1973 and is headquartered in West Chester, Ohio, USA. 194c operates over 300 retail stores across the United States and Canada, as well as an online store. The company’s name comes from the year 1940, which is significant because it marks the end of regular-issue U.S. Coinage before the minting of the current coinage design in 1959. Collectors often refer to coins minted between 1940 and 1964 as “silver coins” because they contain a higher percentage of silver than modern coins. 194c’s focus on collectible coins and currency has made it a popular destination for numismatists and coin enthusiasts.

What is 194c of the Income Tax Act?

194C is a section of the Income Tax Act in India that deals with the deduction of tax at source (TDS) on payments made to non-resident entities. It applies to payments made to non-resident entities for rendering services, selling goods, or transferring any property in India. The person making the payment is responsible for deducting TDS at a specified rate and depositing it with the government. The rate of TDS varies based on the nature of payment and the country of residence of the non-resident entity. The purpose of 194C is to ensure that income earned by non-resident entities in India is subject to taxation and prevents tax evasion.

What Constitutes as Work Under Section 194C?

Section 194C of the Income Tax Act in India applies to payments made to non-resident entities for rendering services, selling goods, or transferring any property in India. The following are some examples of work that would constitute as work under Section 194C:

1. Services: This includes professional services, consultancy services, technical services, and any other services provided by a non-resident entity to an Indian resident.

2. Goods: This includes the sale of goods by a non-resident entity to an Indian resident.

3. Transfer of property: This includes the transfer of any immovable property, such as land or buildings, by a non-resident entity to an Indian resident.

Deposit of TDS under Section 194C – Time Limit

Under Section 194C of the Income Tax Act in India, the person making the payment to a non-resident entity is responsible for deducting TDS (tax deducted at source) and depositing it with the government. The time limit for depositing TDS under Section 194C is as follows:

1. Monthly payment: If the payments to a non-resident entity are made on a monthly basis, TDS should be deducted and deposited with the government by the 7th of the succeeding month. For example, if TDS is deducted in March, it should be deposited by 7th April.

2. Other payments: If the payments to a non-resident entity are made in any other month, TDS should be deducted and deposited with the government by the 30th of the month following the month in which the payment was made. For example, if TDS is deducted in November, it should be deposited by 30th December.

In case of failure to deposit TDS within the specified time limit, interest is charged at a rate of 1% per month or part of a month from the due date until the date of actual payment. 

What is TDS on Contractor Rate Under Section 194C?

Under Section 194C of the Income Tax Act in India, TDS (tax deducted at source) is applicable on payments made to non-resident contractors for rendering services in India. The rate of TDS on contractor rate under Section 194C is 5% (plus applicable surcharge and education cess) if the payment is made in Indian rupees.

The contractor rate refers to the pre-determined rate at which a contractor is paid for providing services. This rate is generally higher than the actual cost of the services provided, as it includes a profit margin for the contractor. When a non-resident contractor is engaged to provide services in India, TDS is deducted at the time of payment at the contractor rate.

Exceptions to TDS Under Section 194C

There are certain exceptions to TDS (tax deducted at source) under Section 194C of the Income Tax Act in India. Some of the notable exceptions are:

1. Payments made to a non-resident entity that is a government or a local authority: TDS is not required to be deducted on payments made to such entities.

2. Payments made to a non-resident entity that is a foreign embassy, high commission, or consulate: TDS is not required to be deducted on payments made to such entities.

3. Payments made to a non-resident entity that is a foreign university: TDS is not required to be deducted on payments made to such entities for providing educational services.

4. Payments made to a non-resident entity that is engaged in rendering technical services under the bilateral DTAA (Double Taxation Avoidance Agreement): TDS is not required to be deducted on payments made to such entities under certain conditions specified in the DTAA.

5. Payments made to a non-resident entity that is engaged in rendering professional services under the bilateral DTAA: TDS is not required to be deducted on payments made to such entities under certain conditions specified in the DTAA.

When is TDS Not Deducted Under Section 194C?

TDS (tax deducted at source) is not required to be deducted under Section 194C of the Income Tax Act in India in the following circumstances:

1. Payments made to a non-resident entity that is a government or a local authority.

2. Payments made to a non-resident entity that is a foreign embassy, high commission, or consulate.

3. Payments made to a non-resident entity that is a foreign university for providing educational services.

4. Payments made to a non-resident entity that is engaged in rendering technical services under the bilateral DTAA (Double Taxation Avoidance Agreement) and certain conditions specified in the DTAA are met.

5. Payments made to a non-resident entity that is engaged in rendering professional services under the bilateral DTAA and certain conditions specified in the DTAA are met.

TDS Certificate – Date of Issuance

As per the Income Tax Act in India, the person responsible for deducting TDS (tax deducted at source) is required to issue a TDS certificate to the recipient of payment within a specified timeframe. The date of issuance of the TDS certificate is mentioned in Section 203A of the Income Tax Act.

The TDS certificate should be issued on or before the last date for filing the annual income tax return (ITR) of the deductor, which is generally July 31 of the subsequent financial year. For example, if TDS is deducted during the financial year 2021-22 (April 1, 2021, to March 31, 2022), then the TDS certificate should be issued by July 31, 2023.

How to calculate TDS under section 194C?

The calculation of TDS (tax deducted at source) under Section 194C of the Income Tax Act in India is as follows:

1. Determine the total amount payable to the non-resident entity.

2. Calculate the taxable income of the non-resident entity from the Indian sources based on the nature of the payment.

3. If the taxable income is less than or equal to Rs. 50,000, then no TDS is required to be deducted under Section 194C.

4. If the taxable income is more than Rs. 50,000, then TDS is required to be deducted at the applicable rate based on the type of income and the relevant DTAA (Double Taxation Avoidance Agreement).

5. The TDS rate for payments made to a non-resident entity engaged in rendering technical services is 10% (without any exemption or deduction) as per Section 194C(2)(i).

6. The TDS rate for payments made to a non-resident entity engaged in rendering professional services is 10% (without any exemption or deduction) as per Section 194C(2)(ii).

7. The TDS rate for payments made to a non-resident entity engaged in rendering services other than technical or professional services is calculated based on the applicable tax slab rates as per Section 194C(2)(iii).

8. The TDS rate for payments made to a non-resident entity for providing royalty is calculated based on the applicable tax slab rates as per Section 194C(2)(iv).

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