Everyone pay taxes and so does contractors. But like many, they are also involved in providing services so they pay taxes through indirect means. Their share of taxes is deducted at the source by the person or an organisation or a company/business. This is called TDS on contractor payment. Here, TDS means Tax Deducted at Source. TDS is deducted only on work contracts.
Who are Contractors?
A person or a group of persons who carry out any work or services or supply of labour for carrying out any work on behalf of any client under a contract are called as contractors.
Who are Sub-Contractor?
Any person or group of person who –
• carry out work or services, or,
• only a part of the whole work or services, or,
• supply labour to carry out work or services,
on behalf of another contractor are called as Sub-Contractor.
Who can deduct TDS on contractor?
Mainly there can be 2 kinds of entities who can deduct taxes on payment if the services rendered by the contractors. They are –
• Government Entities –
o Central government
o State government
o Universities/Colleges
o Schools
o Municipal Corporations
o Panchayat Organisations
o Any other company or corporations owned or run by government.
o Other entities.
• Non- Government Entities –
o An individual
o Hindu Undivided Family
o A privately owned Firm or Company
o Non-governmental organisations
o Any co-operative societies registered under Societies Registration Act, 1860 or any other laws
o A trust or an association or union
o Any private universities/colleges
o Any body or organisation or institutions owned or run by any foreign government having their interest in India
o Any other entities
Who can deduct TDS on Sub-Contractor?
Those contractors who are liable to make payments to the sub-contractors in the exchange of work done by them under contract, has to deduct chargeable amount of tax at the time of making payment to them.
TDS on Contractor rate
• TDS rates has been revised by the government of India from the financial year of 2017-18.
• It is 1% for those contractors who is an individual or who belongs to Hindu Undivided Family.
• Same is 2℅ for other contractors.
• In case of non-submission of PAN card number to the deductor, a rate of 20% will apply for every contractors irrespective of above-mentioned categories.
Note: – On the top of TDS, no extra charge such as educaticontractory surcharges or SHEC will apply to the contractors.
TDS rate on Sub-Contractor
• The rate of deduction for sub-contractors are fixed at 1% which is subject to exemption.
Exemption or reduction of tax rates
• Any contractor who carry out work or services for a single fee of amount which is less than Rs 30, 000.
• In relation to the same deductor, if the total amount of payment to the contractor for his work/services does not exceed to Rs 1, 00, 000.
• If the total income of any contractor from every sources does not exceed the exempted limit of taxable income of Rs 2, 50, 000.
• In case of sub-contractors, if the type of work allotted to him under contract is a menial one, which may involve plying, leasing, hiring of goods carriages etc, then also it is exempted from paying any taxes provided he furnishes his PAN number and other details with the Income Tax Department.
• For any valid reason, taxpayers can submit an application with the assessing officer for reduction or exemption, as the case maybe.
• Assessing officer upon assessing the validity of reason may issue a certificate to the taxpayer for exemption/reduction.
• The taxpayer will have to submit this certificate along with his PAN number to the deductor for any relief.
Work Contracts included
• Advertising
• Catering services
• Broadcasting and Telecasting including Production
• Carrying of goods or passengers
• Manufacturing of goods
• Supplying of goods or services
• Supply of labour
• Any other services
TDS Payment
• When the government is deductor, who offers contract, then tax is paid to the government account on the same day of the deduction from the fee of the payee or contractor.
• It is irrespective of whether the challan has been issued or not.
• The time limit for the payment of TDS with the government is, on or before the 7 days of the end of the month.
• When the deductor is a non-government entity, then also the time limit is same, i.e. on or before 7 days of the month.
• And the payment must be made with the government on the same day of deduction.
• In case the payment to the contractor is done annually then, the TDS is deducted in the month of March and hence same is deposited with the government on or before 7 days of the end of the month March, or before 30th April.
TDS Returns filing due date
The last day of filing TDS returns is mentioned below for respective quarters –
• For a first quarter (April to June) – 31st July
• For a second quarter (July to September) – 31st October
• For a third quarter (October to December) – 31st January
• For a fourth quarter (January to March) – 31st May
Issuance of TDS certificate
It is must for the deductor to issue TDS certificate to the taxpayer on time, failing which may incur penalty. Mainly there are 2 categories of deductions and due date of issuing certificate is also different for both of them. That are –
• Government Deductor –
1. For a First quarter (1st April to 30th June) – 15th August
2. For Second quarter (1st July to 30th September) – 15th November
3. For a Third quarter (1st October to 31st December) – 15th February
4. For a Fourth quarter (1st January to 31st March) – 30th May
• Non-government Deductor –
1. For a First quarter (1st April to 30th June) – 30th July
2. For a Second quarter (1st July to 30th September) – 30th October
3. For a Third quarter (1st October to 31st December) – 30th January
4. For a Fourth quarter (1st January to 31st March) – 30th May
TDS Applicability: Section 194C
According to this section 194C of the Income Tax Act, 1961, TDS is applicable on the contractors’ income or fee. As they also, like many, provide these services or generate work, so they are liable to pay taxes. So is the case with sub-contractors. This way, they also become part of formal economy of this country and contribute in building this nation.
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