TDS on repair and maintenance – Section 194C

TDS on repair and maintenance – Section 194C – Introduction

Section 194C provides for TDS to be deducted on payment made on repair and maintenance. TDS on repair and maintenance 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 for repair or maintenance, such person is liable to deduct TDS on payment made for repair and maintenance. Let’s understand this concept in depth.

What is ‘repair and maintenance’ for the purposes of Section 194C of the Income Tax Act, 1961?

In essence, the work which is of routine, normal and repetitive nature relating to repairing and maintenance but not of technical nature is to be considered under Section 194C.

Applicability of TDS provisions on Repair and Maintenance under Section 194C of the Income Tax Act, 1961

When there is a contract for repair and/or maintenance between a contractor and ‘specified persons’ and a payment is made to the contractor for undertaking any work in the nature of repair or maintenance in furtherance to the contract signed,  TDS is to be deducted on such payment as per the specified rate in Section 194C of the Act.

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 repair and maintenance?

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 cooperative 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, of 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 Repairs and Maintenance 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 an 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%

• Moreover, no Surcharge and Higher Education Cess (“HEC”) shall be added to the above-mentioned rates.

Furthermore, 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 repair and maintenance 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 than the ones mentioned

whichever event takes place earlier.

Deemed application of provisions of TDS on Repair and Maintenance

When 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 repair and maintenance will apply.

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

• The threshold for deduction of TDS on Repair and Maintenance is currently set at Rs. 30,000 in a single transaction and the aggregate amounts do 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

• The sum doesn’t exceed Rs. 30,000: When the amount credited/ paid is not more than Rs. 30,000 in a single transaction, then no TDS shall be deducted.
• The sum doesn’t exceed the aggregate of Rs. 1,00,000: Furthermore, no TDS shall be deducted, when the amount or aggregate of amounts credited/ paid during the FY is not more than Rs. 1,00,000.
• Personal purpose: When consideration paid by an individual or HUF is on account of personal purpose, no TDS will be deducted.
• Non-Resident Contractor: Payment made to a Non-Resident contractor shall not attract TDS under section 194C of the Income Tax Act. However, it shall be governed by provisions of Section 195.

Clarification by CBDT

Circulars

• TDS on payment made for repair and maintenance 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 from 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 Repair and Maintenance), Income Tax Act, 1961

• In the case of Vide Eastern Typewriter Service v. State of Andhra Pradesh (1978), the Court held that the repair of typewriters and other machines of government offices will be covered under the definition of work under Section 194C.
• Furthermore, the Bombay High Court in Commissioner of Income Tax v Saifee Hospital, 2019, held that where the service provided was of maintenance of the medical equipment, it will not be considered as Technical Services under Section 194J but a work contract under Section 194C.

Commissioner of Income Tax v. Mumbai Metropolitan Regional Development Authority, [2018]: In this case, the Bombay High Court held that repair and maintenance of spare parts like greasing does not require technical expertise. So, Section 194C will be applicable and TDS will be deducted on such payments.

Illustration: – 

Mr Y has employed the services of Mr Z for repairing the spare parts of his house and outhouse. So, at what rate the TDS will be applied [Assuming the payment is of Rs. 35,000]?

Solution:

The payment is made to the individual for its services. Additionally, the repairing of spare parts did not require technical expertise and thus, it will not constitute technical services. It will be covered under Section 194C.

Therefore, the applicable rate and amount of TDS will be 1% and Rs. 350 respectively on such payment.

Illustration:

Mr A employed the services of Mr B for repairing the car tyres of his car for Rs. 10,000. So, at what rate, TDS will be deductible?

Solution:

The payment is made for the services provided to an individual and it is covered under Section 194C but it is not more than the threshold limit of Rs. 30,000.

Thus, the TDS rate for repair and maintenance will be Nil, i.e., no TDS will be deducted on such payment.

For the Full text of Section 194C of the Income Tax Act, 1961 please refer to this link.

So, TDS on repair and maintenance 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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