TDS on Payment to Contractor/Sub-Contractor under New Provisions w.e.f. 1-10-2009

Friday, October 9, 2009 6:31 PM By Livemail


Provisions applicable from 1-10-2009 for TDS rates and other provision of section 194C “TDS from payment to contractors and sub-contractors as amendment made by the finance (No.2) act, 2009.


In order to reduce the scope for disputes regarding classification of contract as sub contract the act has specified the same rate of TDS for payments to both contractors as well as sub contractors. To rationalise the TDS rates and to remove multiple classifications the act has provided same rate of TDS in the case of payment for advertising contracts.


TDS on Payment to all Contracts/Sub-Contracts including Advertisement Contract/Sub-Contractors
Rate of TDS
  1. Payment for a contract is to be made to individual/HUF – 1%
  2. Payment for a contract is to be made to Other than individual/HUF - 2%
Notes:
  1. 20% in all above cases – PAN is not quoted by the deductee on or after 1-4-2010.
  2. No Surcharge, EC and SHEC shall be added
  3. TDS shall be deductible a basic rate
TDS on Payment to Transporter -TDS rate will be as follows under two conditions w.e.f. 1-10-2009.
When PAN is quoted
  1. NIL
When PAN is not quoted
  1. 1% for Individual/HUF. (Up to 31-3-2010 after that 20% in all cases.)
  2. 2% for Other then Individual/HUF. (Up to 31-3-2010 after that 20% in all cases.)
Conditions when Tax is not required to be deducted at source
1. If amount does not exceed Rs. 20,000 to the contractor or sub-contractor at one time.
2. And if amount does not exceed Rs. 50,000 in the aggregate during a financial year in-spite of the fact that separate contracts are entered into with that person.


Question – Will the provision apply in a case where a contract or work is given on piece rate basis without any stipulation regarding the total quantum of such work?
Answer – If the total payment under the contract is likely to exceed Rs. 50,000 for the entire period during which the contract will remaining force, income-tax will have to be deducted at source. In a case where , a the time when the contract was entered into, it was expected that the total payment there under would not exceed Rs. 50,000 but later on it is found that the payment exceeds that amount, deducted should be made in respect of earlier payment as well.

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