Liability to Deduct TDS on Payment made to Independent Contractors for Advertisement and other purposes

[Section 194C of the Income Tax Act, 1961]

1. Payments for which TDS is to be deducted under this Section

It includes any payment made, under a contract or a sub-contract, to Independent Contractor for:-

a. advertising,

b. broadcasting,

c. telecasting,

d. production of programmes for such broadcasting or telecasting,

e. carriage of goods or passengers by any mode of transport other than by railways,

f. catering,

g. manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer or its associate.

To illustrate- A company wishes to hire a service of an advertisement agency for promoting its products. The company will be required to deduct TDS while making payment to the agency for such services. This TDS is also required to be deducted on payment made to Google or Facebook for their advertisement services.

2. Who has to deduct TDS

The following persons are required to deduct TDS, if they make such payments as are referred to above under a contract or a sub-contract, to independent contractors-

a. the Central Government or any State Government; or

b. any local authority; or

c. any corporation established by or under a Central, State or Provincial Act; or

d. any company; or

e. any co-operative society; or

f. any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or

g. any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India; or

h. any trust; or

i. any university established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a university under section 3 of the University Grants Commission Act, 1956 (3 of 1956); or

j. any Government of a foreign State or a foreign enterprise or any association or body established outside India; or

k. any firm; or

l. any person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, if such person,—

(A) does not fall under any of the preceding sub-clauses; and

(B) has total sales, gross receipts or turnover from business or profession carried on by him exceeding one crore rupees in case of business or fifty lakh rupees in case of profession during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor;

3. At what time is the TDS required to be deducted

At the time of credit of such sum to the account of the contractor or at the time of payment thereof, whichever is earlier.

4. How much TDS is required to be deducted

An amount equal to—

(i) 1% of the sum paid or payable where the contractor/payee/deductee is an individual or a HUF;

(ii) 2% of the sum paid or payable where the contractor/payee/deductee is a person other than an individual or a HUF.

5. Exemptions

5.1 No individual or HUF shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family.

5.2 No deduction shall be made from the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor, if such sum does not exceed 30,000 INR. But where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds 1,00,000 INR, the person responsible for paying such sums shall be liable to deduct TDS under this section.

5.3 When the payment is to be made to the Contractor in course of his business of plying, hiring or leasing goods carriages, where such contractor owns ten or less goods carriages at any time during the previous year and furnishes a declaration to that effect along with his PAN Number, to the person paying or crediting such sum.

6. Timeline for Depositing TDS under Section 194C

7. Consequences of failure to deduct or failure to deposit

The authors can be reached at office@shashankmangalandco.in.