TDS on transport contractors – Section 194C – Introduction
Section 194C deals with the deduction of TDS on payments made to contract transporters. Section 194C of the Income Tax Act, 1961 (referred to as the “Act”) mandates the deduction of TDS on transportation charges. When a person makes a payment to the contractor on a contract, the person has to deduct TDS on such payment made for transportation or on payment made towards freight charges. Let’s understand this concept in –depth.
TDS on Transportation Charges – A Summary
| TRANSACTION | TDS Rate on Individuals/ HUFs | TDS Rate on Others |
| Passenger Transportation -If the amount in a single transaction is not more than Rs. 30,000 | Nil | Nil |
| Passenger Transportation – If the amount of aggregate is not more than Rs. 1,00,000 | Nil | Nil |
| Passenger Transportation – If the amount is more than Rs. 30,000 or an aggregate of Rs. 1,00,000 | 1% | 2%
|
| Good Carriage Transportation – up to ten vessels | Nil | Nil |
| Goods Carriage Transportation – more than ten vessels | 1%
[Only if the amount exceeds Rs. 30,000 or an aggregate of 1,00,000] |
2%
[Only if the amount exceeds Rs. 30,000 or an aggregate of 1,00,000] |
Section 194C of the Income Tax Act, 1961 mandates the deduction of TDS on transportation charges at the rate of 1% or 2% (depending on the case) for payments made to residents.
Who is a ‘transporter’ for the purposes of Section 194C of the Income Tax Act, 1961?
A transporter refers to a person responsible for handling the plying, leasing, or hiring of carriages for goods.
Applicability of TDS provisions on Transportation Charges under Section 194C of the Income Tax Act, 1961
If there is a contract between a contractor and “specified persons” and a payment is made to the contractor for undertaking any “work,” TDS must be deducted at the specified rate.
Note: A contract between a sub-contractor (transporter) and specified persons will also be liable to TDS under Section 194C, Income Tax Act, 1961.
Defining “specified persons” under Section 194C of the Income Tax Act, 1961- Payment to transportation contractors
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 is 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 a business) or Rs. 50 Lakh (in case of profession).
Defining “work” under Section 194C of the Income Tax Act, 1961- Payment to transportation contractors
The term “work” under Section 194C will include these: –
- Carriage of goods by any transport except by rail;
- Carriage of passengers by any transport except by rail;
Rate of deduction of TDS on Transportation Charges under Section 194C of the Income Tax Act, 1961.
The rate of TDS deduction 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 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%
- The above-mentioned rates shall not have any surcharge or Higher Education Cess added to them.
Section 206AB of the Act mandates that the deductor must deduct TDS at the rate of 20% if the payee does not provide their PAN number.
Time of deducting TDS on Transportation Charges under Section 194C of the Income Tax Act, 1961
TDS is deducted when a payment is made to a contractor in the following cases:
- The account of the payee is credited with such sum; or
- Payee is paid in cash or via the issue of cheque/ draft/ any other mode,
whichever event takes place earlier.
Deemed application of provisions of TDS on Transportation Charges
If a person is liable to make a payment to a payee and their Suspense Account is credited with such an amount, it will be deemed to have been credited to the account of the payee. As a result, the provisions for the deduction of TDS on payment made for transportation charges will apply.
Threshold Limit for deduction of TDS on payment made towards Transportation Charges under Section 194C of the Income Tax Act, 1961
- No deduction of TDS on Transportation Charges in case of payment of Rs. 30,000 in a single transaction or payment of aggregate amounts not exceeding 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: No TDS shall be deducted where the amount credited/ paid does not exceed Rs. 30,000 in a single transaction.
- 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 during the FY does not exceed Rs. 1,00,000.
- Personal Purpose: If an individual or HUF pays consideration for a personal purpose, they are not required to deduct TDS 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. Instead, the provisions of Section 195 shall govern this aspect of taxation.
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
Circular
- TDS on payment made to transport contractors 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
- When the payment is made to a travel agent or airline, it will not be subject to deduction of TDS under Section 194C because of the privity of the contract. – Circular No.: 715/ 1995.
- When a bus, plane, or other transport is chartered by specified entities, TDS to be deducted will not be covered under Section 194C. – Circular No.: 715/ 1995.
- In the event of a payment being made to a forwarding or clearing agent for the carriage of goods by specified entities will be covered under Section 194C. – Circular No.: 715/ 1995.
Landmark Judgements for Section 194C (TDS on Transportation Charges), Income Tax Act, 1961.
- In the case of Associated Cement Co. Ltd. v. Commissioner of Income Tax, [1993] 201 ITR 435, the High Court of Patna held that Section 194C applies to transportation contracts, including other contracts as well.
- Furthermore, it stated that the term ‘transportation contract’ will cover the loading and unloading of goods and also plying of transportation.
Illustration: –
Mr. X has made payments of Rs. 50,000 to Mr. Y for leasing of goods carriage. Determine the rate of deduction of TDS on this payment. [Assuming Mr. Y. owned eleven carriages in the previous year].
Solution: The contract is between individuals i.e. Mr. X pays Mr.Y and the work undertaken is of leasing of goods carriage. Mr. Y owned eleven carriages in the previous year and the payment made was Rs. 50,000, i.e., more than the threshold limit of Rs. 30,000 provided under Section 194C. Therefore, such payment shall be liable to TDS under Section 194C.
Therefore, the applicable rate and amount of deduction of TDS under Section 194C will be 1% and Rs 500 respectively.
Illustration:-
Mr. Y, in order to avail the services of passenger transportation, paid Rs. 20,000 to Mr. Z. Determine the rate of deduction of TDS on this payment.
Solution: In the following case, to avail of passenger transportation Mr.Y, an individual, paid Rs. 20,000. This means that the payment has not breached the threshold limit of Rs. 30,000.
Thus, the applicable rate of TDS on transportation charges will be Nil.
For the Full text of Section 194C of the Income Tax Act, 1961 please refer to this link
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