Introduction – TDS on Job Work – Section 194C of Income Tax Act
Section 194C provides for TDS to be deducted on payment made towards job work. TDS on job work is required to be deducted under Section 194C of Income Tax Act, 1961 (hereinafter referred to as the “Act”). . Let’s understand the concept in detail.
What is ‘job work’ for the purposes of Section 194C of the Income Tax Act, 1961?
A job work is a contract for the supplying and manufacturing of a product as per the specifications provided by the customer and where the customer also provides the raw materials for producing the product.
Applicability of TDS provisions on Job Work under Section 194C of the Income Tax Act, 1961
When there is a contract of job work between a contractor and ‘specified persons’ and a payment is made to the contractor for undertaking any ‘work’ in the nature of job work in furtherance to the contract signed, TDS is to be deducted on such payment as per the specified rate.
Note: A contract between a sub-contractor and specified persons will also be liable to TDS under Section 194C, Income Tax Act, 1961.
Who are considered as “specified persons” for the purpose of deduction of TDS on job work under Section 194C of the Income Tax Act, 1961?
A specified person, as per Section 194C includes:
- The Central Government;
- Any of the State Governments;
- Any Local Authority;
- A company;
- A co-operative society;
- A firm;
- A trust;
- Any State authority responsible for providing housing accommodation or planning or development of cities, towns, etc.
- A society registered under the Societies Registration Act, 1860;
- A university established or incorporated under the respective Central, State or Provincial legislation;
- A Government of a foreign country or a non-resident corporate entity or any other association or body of such foreign State;
- An individual, BOI, AOP or HUF has total sales, turnover or gross receipts of more than Rs. 1 crore (in case of business) or Rs. 50 Lakh (in case of profession).
What will be considered as “work” under Section 194C of the Income Tax Act, 1961?
- The term work under Section 194C will means the supplying and manufacturing of a product as per the specification and requirement of the customers from the material purchased from customer
Note: It will not be considered as job work under Section under Section 194C of the Income Tax Act, 1961 if the material is purchased from a person or is provided by a person who is not the customer.
Rate of Deduction of TDS on Job Work Charges under Section 194C of the Income Tax Act, 1961
- TDS shall be deducted at the following rates under Section 194C of the Act depending on whether the payment is made to an Individual/ HUF or other than Individual/ HUF:
-
- Credit is given/ Payment is made to an Individual/ HUF – 1%
- Credit is given/Payment is made to a person other than an Individual/ HUF – 2%
- No Surcharge and Higher Education Cess (“HEC”) shall be added to the above-mentioned rates.
As per Section 206AB of the Act, TDS at the rate of 20% shall be deducted where thedeductyee does not provide the PAN number to the deductor.
Time of deduction of TDS on job work under Section 194C of the Income Tax Act, 1961
TDS is required to be deducted in case of payment made to the contractor when-
- Such sum is credited to the account of deductee; or
- Payment is made to the deductee in cash or by way of issue of cheque/ draft/ any other mode
whichever event takes place earlier.
Deemed application of provisions of TDS on Job Work Charges
Where the amount is credited to the Suspense Account or any other account in the books of the person who is liable to make payment to the payee, it will be deemed to have been credited to the account of the payee and the provisions for deduction of TDS on payment made towards job work charges will apply.
Threshold Limit for deduction of TDS for payment made towards Job Work Charges under Section 194C of the Income Tax Act, 1961
- The threshold limit for deduction of TDS on payment made towards Job Work Charges is as follows:
- Payment should not exceed 30,000 in case of a single transaction and;
- Aggregate payments made during the relevant FY should not exceed Rs. 1,00,000
- If it exceeds the threshold limit, then the rate of deduction as provided under Section 194C of the Act will be applicable, i.e., 1% or 2%.
Exemption from deduction of TDS under Section 194C of Income Tax Act, 1961
- Sum doesn’t exceed Rs. 30,000: Where the amount credited/ paid does not exceed Rs. 30,000 in a single transaction, no TDS shall be deducted.
- Sum doesn’t exceed aggregate of Rs. 1,00,000: Further, no TDS on job work charges shall be deducted, where the amount or aggregate of amounts credited/ paid during the FY does not exceed Rs. 1,00,000.
- Personal Purpose: Where consideration paid by an individual or HUF is on account of personal purpose, no TDS is to be deducted on such consideration.
- Non-Resident Contractor: Payment made to a Non-Resident contractor shall not attract TDS under Section 194C of Income Tax Act, 1961. However, it shall be governed by provisions of Section 195 .
Clarification by CBDT
Circular
- TDS on job work shall be deducted on invoice value, excluding the value of GST (if such value is mentioned separately in the invoice) – Circular No. 23/ 2017.
- However, TDS shall be deducted on the entire invoice value (if value of GST is not mentioned separately in the invoice) – Circular No. 23/ 2017
- Job work related to art is not professional service and is covered under Section194C – Circular No.: 715/ 1995
Landmark Judgements for Section 194C (TDS on Job Work Charges) of the Income Tax Act, 1961
- In the case of Kramski Stamping & Molding India (P.) Ltd. v. Assistant Commissioner of Income-tax [2019], the High Court held that the payment was made to the company for electro-plating on copper rolls and the required material of gold and nickel was purchased from a third party and not the customer.
It will be covered under the exception of TDS on Job Works and Section 194C will not apply.
- In the case of Deputy Commissioner of Income-tax v. Kodak India (P.) Ltd. [2015], ITAT held that where the job work assignment was for assembling a camera and the assessee provided the raw materials and working capital required, it will be considered as TDS on Job Work as per Section 194C.
Illustrations: –
XYZ Ltd. has taken service of ABC Ltd. for the job work of manufacturing shoes and it has provided raw materials as well. At what rate, the TDS will be deducted and what would be the amount of deduction of TDS [Assuming that the payment was Rs. 60,000]?
Solution: The payment was made to neither to an individual or an HUF. Also, it is above the threshold limit of Rs. 30,000. The raw materials were also provided by the customer. So, it is covered under Section 194C.
So, the applicable rate and amount of TDS on Job Works will be 2% and Rs. 1,200 respectively.
Illustration: Mr. Y undertook services of Mr. A for manufacturing and supplying shirts. At what rate, the TDS will be deducted [Assuming that the raw materials were provided by Mr. Z]?
Solution: Since the raw materials were provided by a third party, this will not fall within the purview of Section 194C.
For the Full text of Section 194C of Income Tax Act, please refer this link
Explore our Full detailed Article on TDS.
TDS on job work is required to be deducted under Section 194C of the Income Tax Act, 1961 at the rate of 1% or 2% (as the case may be) for payments to residents.
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