Introduction – TDS on car hire charges – Section 194C of Income Tax Act
Section 194C provides for TDS to be deducted on payment made on car hire. TDS on car hire charges is required to be deducted under Section 194C of the Income Tax Act, 1961 (hereinafter referred to as the “Act”). When a person makes a payment to the contractor on a contract, he/ she has to deduct TDS on such payment made for car hire charges. Let’s take a look at the various aspects of this concept.
What do you mean by “car hire charges” for the purposes of Section 194C of the Income Tax Act, 1961?
When a car is hired on charge, for a particular purpose without any maintenance or running cost, it will be within the purview of Section 194C.
Applicability of TDS provisions on Car Hire Charges under Section 194C of the Income Tax Act, 1961
When there is a contract between a contractor and ‘specified persons’ and a payment is made to the contractor for undertaking any ‘work’, a TDS is to be deducted 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 are considered as “specified persons” for the purpose of deduction of TDS on car hire charges?
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).
Rate and Amount for deduction of TDS for Car Hire Charges under Section 194C of the Income Tax Act, 1961
The rate of TDS to be deducted is as under: –
- 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 the payee does not provide the PAN number to the deductor.
Time of deduction of TDS on payment of Car Hire Charges under Section 194C of the Income Tax Act, 1961
TDS is required to be deducted whichever event takes place earlier.
Deemed application of provisions of TDS on Car Hire 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 be credited to the account of the payee and the provisions for TDS on car hire charges will apply.
Threshold Limit for deduction of TDS on Car Hire Charges under Section 194C of the Income Tax Act, 1961
- The threshold limit for deduction of TDS on payment made towards Car Hire Charges is as follows :
- Payment should not exceed Rs. 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 Income Tax deduction under Section 194C of Income Tax Act, 1961 limit
- 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: 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 the Income Tax Act, 1961. However, it shall be governed by provisions of Section 195.
- Business of Hiring, leasing or plying goods carriage: Where the contractor owned ten or less carriages in the previous year and a declaration is provided with PAN to the person paying or crediting the amount to the Deductor.
Clarification by CBDT
Circulars
- TDS on payment made for car hire 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 the value of GST is not mentioned separately in the invoice) – Circular No. 23/ 2017
Landmark Judgements for Section 194C, Income Tax Act, 1961
- In the case of Akshatam Construction LLP v. DCIT [2022], ITAT held that where the car hire charges are paid without any maintenance or running cost, it will be covered under Section 194C.
- In the case of TATA AIG General v. Income-tax Officer [2010], it was held that since the car was hired for the purpose of transporting visitors and employees, it will be covered under Section 194C.
Illustrations: –
X has hired a car for the purpose of travelling from office to his house for a fixed amount of Rs. 50,000. The company provides him this service on all working days and only charges transportation cost from Mr. X. At what rateTDS will be deducted on payment of car hire charges?
Solution: The TDS rate and amount on car hire charges will be at 1% and Rs. 500 respectively since it exceeds the threshold limit of Rs. 30,000 as has been provided under Section 194C of the Act.
Illustration: A, B and C are part of an HUF. It has hired a Honda City for an outstation picnic for the weekend for an amount of Rs. 35,000. At what rate, TDS will be deducted?
Solution: The TDS rate and amount on car hire charges will be at 1% and Rs. 350 respectively since it is an HUF and passes the threshold of Rs. 30,000.
For the Full text of Section 194C of Income Tax Act, 1961, please refer to this link
TDS on car hire charges 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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