Introduction​

The concept of TDS was introduced with an aim to collect tax from the very source of income. As per this concept, a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government. The deductee from whose income tax has been deducted at source would be entitled to get credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor.

Taxes shall be deducted at the rates specified in the relevant provisions of the Act or the First Schedule to the Finance Act. However, in case of payment to non-resident persons, the withholding tax rates specified under the Double Taxation Avoidance Agreements shall also be considered

Section-194C TDS on contractors

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) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier is required to deduct TDS.

 TDS tax rate & time of deduction of TDS u/s 194C?

 (i) one per cent where the payment is being made or credit is being given to an individual or a Hindu undivided family.

 (ii) two per cent where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family.

Limit for tax deduction u/s 194C?

TDS shall be deducted u/s 194C in the following cases:

tax shall be deducted at source—

 (i) on the invoice value excluding the value of material, if such value is mentioned separately in the invoice; or

(ii) on the whole of the invoice value, if the value of material is not mentioned separately in the invoice.

Who is required to deduct TDS u/s 194C?

What does work mean under section 194C?

work” shall include—

  (a) advertising;

  (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;

  (d) catering;

  (e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer or its associate, being a person placed similarly in relation to such customer as is the person placed in relation to the assessee.

Implication of TDS u/s 194C on transpoerter

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,

1. where such contractor owns ten or less goods carriages at any time during the previous year and
2. furnishes a declaration to that effect along with his Permanent Account Number, to the person paying or crediting such sum.

What are the consequences a deductor would face if he fails to deduct TDS or after deducting the same fails to deposit it to the Government’s account?

​​​​​​​​​A deductor would face the following consequences if he fails to deduct TDS or after deducting the same fails to deposit it to the credit of Central Government’s account:-

a) Disallowance of expenditure

As per section 40(a)(ia), any sum payable to a resident, which is subject to deduction of tax at source, would attract 30% disallowance if it is paid without deduction of tax at source or if tax is deducted but is not deposited with the Central Government till the due date of filing of return.

However, where in respect of any such sum, tax is deducted or deposited in subsequent year, as the case may be, the expenditure so disallowed shall be allowed as deduction in that year.

b) Levy of interest

As per section 201 of the Income-tax Act, if a deductor fails to deduct tax at source or after the deducting the same fails to deposit it to the Government’s account then he shall be deemed to be an assessee-in-default and liable to pay simple interest as follows:-

(i) at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and

(ii) at one and one-half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid.​

Late Filing Fee (Sec 234E)

Under Section 234E, the person who is required to deduct/collect TDS/TCS will have to pay a fine of Rs 200 (two hundred) per day until the TDS return is filed. The deductor of TDS shall be liable to pay this for every day of delay until the fine amount is equal to the amount you are supposed to pay as TDS.

c) Levy of Penalty​

Penalty of an amount equal to tax not deducted or paid could be imposed under section 271C​.

Forms for Filing TDS Returns

However, if tax is deducted at source under Sections 194-IA and 194-IB, the deductor shall furnish a challan-cum-statement in Form 26QB and Form 26QC, respectively. The deductor should provide the challan-cum-statement within 30 days from the end of the month in which TDS is deducted. As an exception, no return is required separately in such cases.

TDS Payment Due Dates

The dates for depositing the tax deducted at source and filing of TDS return for the financial year 2023-24 for all the deductors is shown in the below table-

*All sums deducted in accordance with the provisions of Chapter XVII-B by an office of the Government without challan (Treasury Challan) should be deposited on the same day of deduction. Only for tax deducted by the government office during the month of March 2024 should be deposited by 7th April 2024.

Can the payee request the payer not to deduct tax at source and to pay the amount without deduction of tax at source?