Business Loan in Parbhani

• TDS must be deducted by all individuals and entities who are required to pay any amount to a resident contractor for work under a contract. The following persons and entities must deduct TDS from contractor payments:
• The Central or State Government
• Any local authority
• Any corporation established by or under a Central, State, or Provisional Act
• Any company, whether listed on a recognised stock exchange or not
• Any co-operative society
• Any authority formed to meet the needs of housing, or to plan, develop, or improve cities, towns, or villages
• Any society registered under the Societies Registration Act, 1860, or similar laws
• Any trust set up for charitable or religious purpose
• Any university, whether deemed or otherwise.
• Any foreign government, foreign enterprise, or organisation established outside India
• Any partnership firm
• Any individual, Hindu Undivided Family (HUF), or Association of Persons/Body of Individuals (AOP/BOI), whose income exceeds specified limits during the previous financial year
• Any AOP/BOI whose accounts are required to be audited in the previous financial year

• No TDS needs to be deducted if the payment for the contract is less than or equal to Rs. 30,000
• TDS will be deducted if the payment to the contractor exceeds Rs. 30,000 in a single transaction, or Rs. 1,00,000 in total during the financial year
• If a single payment to a contractor is less than or equal to Rs. 30,000, but the total payment made to the contractor during the financial year exceeds Rs. 1,00,000, TDS will still be deducted under Section 194C

Transporter exemption under Section 194C

Under Section 194C, no TDS on contractor payments is required for transporters engaged in the business of plying, hiring, or leasing goods carriages if they furnish their PAN to the payer. In such cases, the applicable TDS rate is NIL. However, if the transporter does not provide a valid PAN, TDS must be deducted at 20%, as prescribed under the Income Tax Act.

Individual or HUF exemption under Section 194C

Under Section 194C, individuals and HUFs are not required to deduct TDS on contractor payments if they were not liable for a tax audit in the preceding financial year. This exemption generally applies where total business turnover did not exceed Rs. 1 crore or gross professional receipts did not exceed Rs. 50 lakh in the previous financial year, irrespective of the Section 194C TDS limit applicable to payments.

TDS Deduction in the Case of Composite Contracts

When materials are part of the supply, the question arises whether TDS should be deducted based on the gross payment to the contractor or the net payment (i.e., gross payment minus any deductions for materials supplied). This will depend on the specific terms of the contract and the actions of the parties involved.

If the contractor is responsible for constructing a building or dam and the specified person is supplying all or some of the materials at agreed prices, TDS will be deducted from the gross payment, without any adjustments for the cost of materials.

If the contractor is only providing labour for the work, with the materials remaining the property of the specified person, the payment to the contractor will be for labour or services only, and will not include the cost of materials supplied by the government or other specified persons.

Therefore, the TDS rate on payments made by the government or other specified persons to contractors will be 2% or 1% of the gross payment or net payment, depending on the contract terms. This is provided that the material value is separately mentioned on the invoice. If the value of the material is not listed separately, TDS will be deducted from the entire invoice amount.

Before paying a contractor or a subcontractor, certain essential documents are required for TDS calculations under Section 194C:

• Contract or agreement: This document outlines the scope of work, duration, amount payable, and other relevant details. It is essential for determining the applicability and amount of TDS.
• PAN Card: The contractor’s Permanent Account Number (PAN) is necessary for making TDS deductions. Verifying the PAN details before payment is crucial, as the TDS rate increases to 20% if PAN details are unavailable.
• Invoice: The contractor must provide an invoice for the completed project or rendered services. The invoice should include the contractor’s name, address, nature of work, amount payable, and GST information.
• Challan: After deducting tax from the payments, remit it to the government. Generate a challan using Form 26Q and deposit the TDS amount with an authorized bank.
• TDS certificate: After deducting and depositing the tax amount, issue a TDS certificate (Form 16A) to the contractor. This certificate must include details such as the TDS amount, contractor’s PAN, and nature of the work performed.

Learn more about GST and its implications on business transactions.

Under Section 194C, TDS on contractor payments applies to contracts involving advertising, broadcasting and telecasting, transportation (other than railways), catering, contract manufacturing using the customer's materials, and the supply of labour. The table below outlines the common contract types covered under this provision.

*Transporters who furnish a valid PAN and satisfy the prescribed conditions under Section 194C are eligible for the transporter exemption, resulting in a NIL TDS rate.

TDS becomes applicable only when the payment exceeds the prescribed threshold of Rs. 30,000 for a single contract or Rs. 1 lakh in aggregate during a financial year.

Certain payments are exempt from TDS under Section 194C. Payments made to contractors engaged in the business of plying, hiring, or leasing goods carriages are exempt if they provide their PAN. Additionally, payments made by individuals or HUFs not subjected to tax audit in the previous year are exempt. If the payment amount does not exceed Rs. 30,000 per transaction or Rs. 1,00,000 annually, TDS is not required. These exemptions aim to reduce the compliance burden on small contractors and specific transactions.

TDS on contractor payments is calculated by multiplying the payment amount by the applicable TDS rate under Section 194C, after confirming that the prescribed threshold has been crossed. Before calculating TDS, verify whether the payment exceeds the TDS on contract limit of Rs. 30,000 for a single payment or Rs. 1 lakh in aggregate during the financial year. For example, if a company pays a contractor Rs. 75,000 and the applicable TDS rate is 2%, the TDS to be deducted is Rs. 1,500.

Rohan runs a Mumbai-based marketing agency with an annual turnover of Rs. 1.2 crore. He hires a freelance graphic designer for a campaign and pays Rs. 75,000. Since Rohan's turnover exceeds Rs. 1 crore and the payment crosses the prescribed threshold, he must deduct TDS under Section 194C. As the designer is an individual, the applicable TDS is 1%, so Rohan deducts Rs. 750 and deposits it with the government by the 7th of the following month.

The criteria for tax deducted at source on payment to contractors in India are as follows:

• Profession: TDS applies to payments made to contractors by individuals, HUFs, and all types of businesses and professions.
• Threshold limit: The TDS threshold limit for Section 194C applies only when the contractor’s one-time payment exceeds Rs. 30,000 or Rs. 1,00,000 in aggregate in a financial year.
• Type of payment: TDS is deducted from payments made to contractors executing work on a contractual basis, such as civil construction, fabrication, and supply of labour.
• Nationality: The contractor should be an Indian resident.

Learn more about business requirements and regulations

Section 194C covers various types of contracts for TDS deduction. These include contracts for construction, repair, and maintenance of buildings and infrastructure, supply of labour, and manufacturing or supply of products according to the customer’s specifications. Advertising contracts, broadcasting and telecasting contracts, and contracts for carriage of goods or passengers by any mode of transport other than railways are also covered. The wide range of contracts ensures comprehensive tax compliance and revenue collection from diverse business activities.

If TDS on contractor payments is applicable under Section 194C because the prescribed payment threshold has been exceeded, you must file a quarterly TDS return using Form 26Q. Timely deduction, deposit, return filing, and issuance of the TDS certificate help ensure compliance with the Income Tax Act.

• Deduct TDS: Deduct TDS at the applicable rate of 1% or 2% when the payment is credited or made, whichever is earlier.
• Deposit the TDS: Deposit the deducted amount with the government by the 7th of the following month (30 April for deductions made in March).
• File Form 26Q: Submit the quarterly TDS return within the prescribed due dates.
• Issue Form 16A: Provide the contractor with Form 16A within 15 days of filing the TDS return.

Failure to comply with Section 194C for TDS on contractor payments can result in interest charges, financial penalties, and even prosecution in cases of wilful default. Businesses should deduct, deposit, and report TDS within the prescribed timelines to avoid these consequences.

Understanding and adhering to Section 194C of the Income Tax Act is crucial for businesses to ensure compliance with tax regulations and avoid penalties. Proper documentation and timely TDS deductions help streamline tax processes and enhance financial transparency.

For financial support and funding options, consider exploring a business loan to help your business grow and thrive. Here is how you can apply for the Bajaj Finance Business Loan:

1. Click on the 'APPLY' button on this page.
2. Enter your 10-digit mobile number and OTP.
3. Fill in the application form with your basic details, such as your full name, PAN, date of birth, and PIN code.
4. Once you enter all your details, please click on ‘PROCEED’ to visit the loan selection page.
5. Enter the loan amount that you need. Choose from our three business loan variants – Term, Flexi Term, and Flexi Hybrid.
6. Choose the repayment tenure- you can select tenure options of
   12 months to
   96 months and click on ‘PROCEED’.
7. Complete your KYC and submit your business loan application.

Our representative will guide you on the next steps. The loan amount will be transferred to your bank account on the successful verification of your documents.