Section 194C - Payments to contractors and sub-contractors - Income-tax Act, 1961

1 [Payments to contractors. 194C. (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to- (i) one per cent. where the payment is being made or credit is being given to an individual or a Hindu undivided family; (ii) two per cent. where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family, of such sum as income-tax on income comprised therein. (2) Where any sum referred to in sub-section (1) is credited to any account, whether called Suspense account or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. (3) Where any sum is paid or credited for carrying out any work mentioned in sub-clause (e) of clause (iv) of the Explanation, tax shall be deducted at source- (i) on the invoice value excluding the value of material, if such value is mentioned separately in the invoice; or (ii) on the whole of the invoice value, if the value of material is not mentioned separately in the invoice. (4) No individual or Hindu undivided family 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) 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 17 [thirty thousand rupees]: Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds 20 [ one lakh rupees ] , the person responsible for paying such sums referred to in sub-section (1) shall be liable to deduct income-tax under this section. (6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, 19 [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 Permanent Account Number, to the person paying or crediting such sum. (7) The person responsible for paying or crediting any sum to the person referred to in sub-section (6) shall furnish, to the prescribed income-tax authority or the person authorised by it, such particulars, in such form and within such time as may be prescribed. Explanation .- For the purposes of this section,- (i) specified person shall mean,- (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) 21 [ 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; (ii) goods carriage shall have the meaning assigned to it in the Explanation to sub-section (7) of section 44AE; (iii) contract shall include sub-contract; (iv) work shall include- (a) advertising; (b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting; (c) carriage of goods or passengers by any mode of transport other than by railways; (d) catering; 22 [ (e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer or its associate, being a person placed similarly in relation to such customer as is the person placed in relation to the assessee under the provisions contained in clause (b) of sub-section (2) of section 40A, ] but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer 23 [ or associate of such customer ] .] ********** Notes :- 1. Substituted vide Finance (No.2) Act, 2009, w.e.f. 1-10-2009, before it was Inserted by the Finance Act, 1972, w.e.f. 1-4-1972. as, 1 [Payments to contractors and sub-contractors. 194C. 2 [ (1) Any person responsible for paying any sum to any resident (hereinafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and- (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 firm; or (k) any individual or a Hindu undivided family, 16 [or an association of persons or a body of individuals, whether incorporated or not, other than those falling under any of the preceding clauses]whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor, shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to- (i) one per cent, in case of advertising, (ii) in any other case two per cent, of such sum as income-tax on income comprised therein: Provided that no individual or a Hindu undivided family 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. ] (2) Any person (being a contractor and not being an individual or a Hindu undivided family) responsible for paying any sum to any resident (hereafter in this section referred to as the sub-contractor) in pursuance of a contract with the sub-contractor for carrying out, or for the supply of labour for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor has undertaken to supply shall, at the time of credit of such sum to the account of the sub-contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax on income comprised therein: 3 [ Provided that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the sub-contractor, shall be liable to deduct income-tax under this sub-section.] 4 [Explanation I.- For the purposes of sub-section (2), the expression contractor shall also include a contractor who is carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and the Government of a foreign State or a foreign enterprise or any association or body established outside India.] 5 [ 6 [Explanation II]. -For the purposes of this section, where any sum referred to in sub-section (1) or sub-section (2) is credited to any account, whether called Suspense account or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.] 7 [Explanation III.- For the purposes of this section, the expression work shall also include- (a) advertising; (b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting; (c) carriage of goods and passengers by any mode of transport other than by railways; (d) catering.] (3) No deduction shall be made under sub-section (1) or sub-section (2) from- 8 [(i) the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor or sub-contractor, if such sum does not exceed twenty thousand rupees: Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds fifty thousand rupees, the person responsible for paying such sums referred to in sub-section (1) or, as the case may be, sub-section (2) shall be liable to deduct income-tax 9 [under this section:] 10 [Provided further that no deduction shall be made under sub- section (2), from the amount of any sum credited or paid or likely to be credited or paid during the previous year to the account of the sub-contractor during the course of business of plying, hiring or leasing goods carriages, on production of a declaration to the person concerned paying or crediting such sum, in the prescribed form and verified in the prescribed manner and within such time as may be prescribed, if such sub-contractor is an individual who has not owned more than two goods carriages at any time during the previous year: Provided also that the person responsible for paying any sum as aforesaid to the sub-contractor referred to in the second proviso shall furnish to the prescribed income-tax authority or the person authorised by it such particulars as may be prescribed in such form and within such time as may be prescribed; or] (ii) any sum credited or paid before the 1st day of June, 1972; 11 [or] 12 [(iii) any sum credited or paid before the 1st day of June, 1973, in pursuance of a contract between the contractor and a co-operative society or in pursuance of a contract between such contractor and the sub-contractor in relation to any work (including supply of labour for carrying out any work) undertaken by the contractor for the co-operative society.] 13 [Explanation .-For the purposes of clause (i), goods carriage shall have the same meaning as in the Explanation to sub-section (7) of section 44AE.] (4) 14 [***] (5) 15 [***]] ------------------------- 2. Substituted by the Finance Act, 2007, w.e.f. 1-6-2007. Prior to its substitution, sub-section (1), as amended by the Finance Act, 1973, w.e.f. 1-4-1973, Finance Act, 1992, w.e.f. 1-6-1992 and Finance Act, 1995, w.e.f. 1-7-1995, read as under : (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and- (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 firm, shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to- (i) one per cent in case of advertising, (ii) in any other case two per cent, of such sum as income-tax on income comprised therein. 3. Inserted by the Finance Act, 2002, w.e.f. 1-6-2002. 4. Inserted by the Finance Act, 1994, w.e.f. 1-6-1994. 5. Inserted by the Finance Act, 1988, w.e.f. 1-6-1988. 6. Renumbered by the Finance Act, 1994, w.e.f. 1-6-1994. 7. Inserted by the Finance Act, 1995, w.e.f. 1-7-1995. 8. Substituted by the Finance (No. 2) Act, 2004, w.e.f. 1-10-2004. Prior to its substitution, clause (i), as amended by the Finance Act, 1982, w.e.f. 1-6-1982 and Finance Act, 1995, w.e.f. 1-7-1995, read as under: (i) any sum credited or paid in pursuance of any contract the consideration for which does not exceed twenty thousand rupees; or 9. Substituted for under this section; or by the Finance Act, 2005, w.e.f. 1-6-2005. 10. Second and third provisos inserted by the Finance Act, 2005, w.e.f. 1-6-2005. 11. Inserted by the Finance Act, 1973, w.e.f. 1-4-1973. 12. Inserted by the Finance Act, 1973, w.e.f. 1-4-1973. 13. Inserted by the Finance Act, 2005, w.e.f. 1-6-2005. 14. Omitted by the Finance Act, 2003, w.e.f. 1-6-2003. Prior to their omission, sub-sections (4) and (5), as amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under : (4) Where the Assessing Officer is satisfied that the total income of the contractor or the sub-contractor justifies the deduction of income-tax at any lower rate or no deduction of income-tax, as the case may be, the Assessing Officer shall, on an application made by the contractor or the sub-contractor in this behalf, give to him such certificate as may be appropriate. (5) Where any such certificate is given, the person responsible for paying the sum referred to in sub-section (1) or sub-section (2) shall, until such certificate is cancelled by the Assessing Officer, deduct income-tax at the rates specified in such certificate or deduct no tax, as the case may be. 15. Omitted by the Finance Act, 2003, w.e.f. 1-6-2003. Prior to their omission, sub-sections (4) and (5), as amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988, read as under : (4) Where the Assessing Officer is satisfied that the total income of the contractor or the sub-contractor justifies the deduction of income-tax at any lower rate or no deduction of income-tax, as the case may be, the Assessing Officer shall, on an application made by the contractor or the sub-contractor in this behalf, give to him such certificate as may be appropriate. (5) Where any such certificate is given, the person responsible for paying the sum referred to in sub-section (1) or sub-section (2) shall, until such certificate is cancelled by the Assessing Officer, deduct income-tax at the rates specified in such certificate or deduct no tax, as the case may be. 16. Inserted by Finance Act, 2008, w.e.f. 1.6.2008. 17. In sub-section (5), for the words twenty thousand rupees , the words thirty thousand rupees has been substituted vide Finance Act, 2010, with effect from the 1st day of July, 2010. 18. In sub-section (5), in the proviso, for the words fifty thousand rupees , the words seventy-five thousand rupees has been substituted vide Finance Act, 2010 with effect from the 1st day of July, 2010. 19. Substituted vide THE FINANCE ACT, 2015 w.e.f. 1st day of June, 2015, before it was read as, on furnishing of 20. Substituted vide THE FINANCE ACT, 2016 w.e.f. 1st day of June, 2016 before it was read as, 18 [seventy-five thousand rupees] 21. Substituted vide Finance Act, 2020 dated 27-03-2020 w.e.f. 01-04-2020 before it was read as is liable to audit of accounts under clause (a) or clause (b) of section 44AB 22. Substituted vide Finance Act, 2020 dated 27-03-2020 w.e.f. 01-04-2020 before it was read as (e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, 23. Inserted vide Finance Act, 2020 dated 27-03-2020 w.e.f. 01-04-2020