Introduction – TDS on AMC Charges (Annual Maintenance Charges)
Section 194C mandates deduction of TDS on payments made for Annual Maintenance Charges or AMC Charges. Under Section 194C of the Income Tax Act, 1961 (hereinafter referred to as the “Act”), you must deduct TDS on AMC charges. When a person makes a payment to the contractor on a contract, the person has to deduct TDS on such payment made towards AMC Charges. Let’s understand this concept of TDS on AMC Charges in detail.
What is ‘annual maintenance’ for the purposes of Section 194C of the Income Tax Act, 1961?
The work of maintenance done once a year is termed as annual maintenance. Section 194C covers only routine, normal, and repetitive natured services, but not those of a technical nature.
Applicability of TDS provisions on AMC Charges under Section 194C of the Income Tax Act, 1961
When there is a contract in the nature of AMC between a contractor and ‘specified persons’ and a payment is made to the contractor for undertaking any ‘work’ for which the payer has to pay AMC Charges 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 of the Income Tax Act, 1961.
Who qualifies as “specified persons” for the purpose of deduction of TDS on AMC Charges 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 cooperative 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, of 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).
Rate of deduction of TDS on AMC Charges under Section 194C of the Income Tax Act, 1961
The rate of TDS is as under: –
The rates specified under Section 194C of the Act shall apply for TDS deduction by the deductor, based on whether they are making the payment to an Individual/HUF or someone other than an Individual/HUF.
-
- In case of Individual/ HUF – 1%
- In case of person other than an Individual/ HUF – 2%
- Above-mentioned rates do not include any surcharge and Higher Education Cess.
The deductor shall deduct TDS at the rate of 20% as per Section 206AB of the Act, if the payee does not provide PAN number.
Time of deducting TDS on annual maintenance charges 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 the payee; or
- Payment is made to the payee 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 AMC 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 for AMC charges will apply.
Threshold for Limit for deduction of on AMC Charges under Section 194C of the Income Tax Act, 1961
- The threshold limit for deduction of TDS on payment made towards AMC 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 u/s 194C of the 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 shall be deducted, where the amount or aggregate of amounts credited/ paid to the recipient during the FY does not exceed Rs. 1,00,000.
- Personal Purpose:If an individual or HUF pays consideration for personal purposes, they are not liable to deduct TDS on such payments.
- Non-Resident Contractor: Payment made to a Non-Resident contractor shall not attract TDS under Section 194C of the Income Tax Act, 1961. However, provisions of Section 195 shall govern it.
Clarification by CBDT
Circular
- TDS on payment made for annual maintenance charges 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.
- Section 194C covers consideration received for Routine and normal contracts of maintenance including supply of spares – Circular No.: 715/1995
Landmark Judgements for Section 194C (TDS on AMC Charges) of the Income Tax Act, 1961
- In the case of Facets Polishing Works (P.) Ltd. v. Income-tax Officer [2015], ITAT held that where machines are already installed and only the annual maintenance of these machineries are done, it will be considered as AMC Charges under Section 194C and not technical services under Section 194J.
- In the case of Bharat Forge Ltd. v. Additional Commissioner of Income-tax [2013], ITAT held that where payment is made for annual maintenance of software, it is covered under Section 194C and not technical services under Section 194J.
Illustrations: –
XYZ Ltd. availed services of Mr. X for annual maintenance of computers at their offices for Rs. 35,000. What is the rate at which XYZ Ltd will deduct TDS? [Assuming that the computers were already installed]
Solution:
Since the payment made to individual exceeds the threshold limit ,XLZ Ltd will deduct TDS @ 1% i.e. for Rs. 350 respectively.
Illustration:
Mr. Z availed services of a company, QRS Ltd. for annual quality monitoring services of its typewriters. What is the rate at which Mr. Z will deduct TDS[Assuming the payment is of Rs. 10,000]
Solution:
Although Section 194C covers these types of payments, the payment is less than the threshold limit of Rs. 30,000
Thus, the payment will not attract any TDS.
For the Full text of Section 194C of Income Tax Act , please refer this link
Explore More Articles on TDS.
The deductor must deduct TDS on AMC Charges (Annual Maintenance Charges) at the rate of 1% or 2% (as applicable) under Section 194C of the Income Tax Act, 1961, for payments made to residents.
Want to know more about TDS on Annual Maintenance Charges (AMC)? Get a free trial to our ‘TDS Course’ today.
Related Articles
- TDS on maintenance charges
- TDS on repair and maintenance
- TDS on transport contractors – Section 194C
- TDS on car hire charges
- TDS on AMCs (Annual Maintenance Charges)
- TDS on Advertisement Agencies
- TDS on catering services
- TDS on courier charges
- TDS on job work
- TDS on security services
- TDS on labour charges
- TDS on payment to transporter
- TDS on courier service
