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TDS on maintenance charges – Section 194C of Income Tax Act

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February 11, 2022

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13 mins read

Introduction – TDS on maintenance charges – Section 194C of Income Tax Act

Section 194C provides for TDS to be deducted on payment of maintenance charges. TDS on maintenance charges When a person makes a payment to the contractor on a contract, the person has to deduct TDS on such payment of maintenance charges. Let’s take a look as to what this means.

What are ‘maintenance charges’ for the purposes of Section 194C of the Income Tax Act, 1961?

Where the contract is for availing the service of maintenance and not for use of the premises or equipment, the payment made for such services availed by the deductor will be considered under Section 194C of the Income Tax Act, 1961.

Applicability of TDS provisions on Maintenance 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’ in the nature of maintenance (as defined above),  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

A specified person, as per Section 194C includes:

  1. The Central Government;
  2. Any of the State Governments;
  3. Any Local Authority;
  4. A company;
  5. A co-operative society;
  6. A firm;
  7. A trust;
  8. Any State authority responsible for providing housing accommodation or planning or development of cities, towns, etc.
  9. A society registered under the Societies Registration Act, 1860;
  10. A university established or incorporated under the respective Central, State or Provincial legislation;
  11. A Government of a foreign country or a non-resident corporate entity or any other association or body of such foreign State;
  12. 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 Maintenance 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 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 deducting TDS on 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 –

  • 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 Maintenance 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 on maintenance charges will apply.

Threshold Limit for deduction of TDS on Maintenance Charges under Section 194C of the Income Tax Act, 1961

  • The threshold limit for deduction of TDS on payment made towards Maintenance Charges is:
    • 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 passes the threshold, then the rate as applicable for TDS on Maintenance Charges 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 u/s 194C of the Income Tax Act, 1961. However, it shall be governed by provisions of Section 195 .

Clarification by CBDT

Circular

  • TDS on 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 the value of GST is not mentioned separately in the invoice) – Circular No. 23/ 2017.
  • Routine and normal contracts of maintenance including supply of spares will be covered under Section 194C – Circular No.: 715/1995

Landmark Judgements for Section 194C (TDS on Maintenance Charges) of the Income Tax Act, 1961

  • In the case of Nijhawan Travel Service (P.) Ltd. v. ACIT [2022], ITAT held that when the payment was made for maintenance of common area, such payment shall be liable to deduction of TDS under Section 194C.
  • In the case of Lifestyle International (P.) Ltd. v. Assistant Commissioner of Income-tax [2022], ITAT held that when the property was taken on lease and there were common area maintenance charges, TDS is to be deducted at 2%.

Illustrations: – 

XYZ Ltd. has employed services of Mr. Y for maintenance of the factory premisesand pays him Rs. 60,000 for his services. At what rate, TDS will be deducted?

Solution: The rate and amount of TDS will be at 1% and Rs. 600 respectively as the payment is made to an individual and it exceeds the threshold limit prescribed under Section 194C of the Act.

Illustration: Mr. X.. has put his house on rent and and also pays annual maintenance charges related to electricity charges, water charges, elevator etc. of an aggregate sum of Rs. 50,000 in a FY to DLF Housing Estate Ltd.. At what rate, will  TDS will be deducted?

Solution: The rate and amount of TDS will be at 2% and Rs.1,000 respectively as it exceeds the threshold limit of Rs. 1,00,000 and the payment is made to a company, i,e., neither an individual nor an HUF.

For the Full text of Section 194C of Income Tax Act, please refer this link

Explore our Full detailed Article on TDS.

TDS on maintenance 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.

Want to know more about TDS on Maintenance Charges? Get a free trial to our ‘TDS Course’ today.

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Arinjay Jain

Bio of author

Arinjay is a Chartered Accountant with more than 20 years of post-qualification experience. He worked as Director, in the M&A Tax Division at KPMG in India. Presently, he is advising several MNCs in UAE on Economic Substance Regulations and impact of the UAE Corporate Tax Law on their business and clients across globe on International Tax issues . He is a well recognised Trainer of International Tax and UAE Corporate Tax. The areas of service include the following : - Advise and Compliance relating to International Tax Issues; Advise relating to UAE Corporate Tax Issues; Advise and Compliance relating to UAE Economic Substance Regulations; Advise and Compliance relating to Indian Income Tax Issues; Other connected matters from a Regulatory perspective.

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