Clarification on TDS Deduction Requirements under Sections 194C and 194J of the Income Tax Act, Income Tax

[Sandeep Anand]

Dear Sir,

This is to write to seek clarification regarding the TDS ( deduction requirements under sections 194C and 194J of the Income Tax Act. Specifically, I would appreciate your guidance on the following scenarios:

1. Under Section 194C: In April 2023, we made a payment of Rs. 20,000/- to a contractor and did not deduct TDS since the transaction amount was below Rs. 30,000/-. However, in the following month, we made another payment of Rs. 50,000/- to the same contractor and deducted TDS at the rate of 2% (Rs. 1,000/-). The total payment made to the contractor during the year is Rs. 70,000/-, which does not exceed the threshold limit of Rs. 100,000/-.

   My query relates to whether it is mandatory to include the TDS deduction for our first payment of Rs. 20,000/- when calculating the TDS for the second payment of Rs. 50,000/-. In other words, should we deduct 2% of the cumulative amount (i.e., Rs. 70,000/-) for TDS purposes?

2. Under Section 194J: If a similar situation arises where multiple payments are made to a professional or technical service provider, should we include the TDS deduction of the previous payments when calculating the TDS for subsequent payments? I request your expertise and guidance on these matters. Thanks & regards - Sandeep

Posts / Replies

[Charu Tyagi]

For 1st Query - Yes, TDS has to deduct on cumulative amount of ₹ 70,000 u/s 194C

And for 2nd Query - Yes, Total amount to consider including TDS liability for calculating liability of TDS deduction to made on subsequent payments.

[Lav Prajapati]

Under section 194C(5) provide threshold limit for deduction of TDS when liability arise for deduction of TDS in case of work contract :-

(a) When single amount credit or paid during the financial year is more than 30,000/-

or

(b) Aggregate of the amounts of credit or paid during the financial year exceeds 1,00,000/-

if deductor fulfill any condition mention a or b then he liable to deduct TDS on entire cumulative amount on the date when cross the threshold limit.

In this case of query 1.

1) Deductor liable to deduct the TDS when he made payment 30000 to contractor

2) TDS shall be deducted 1400/- i.e. (Rs. 70000 * 2%)

3) TDS also deducted when payment of Rs. 50000/- also of Rs. 1000/- (Rs. 50,000*2%).

[Padmanathan Kollengode]

Qyery 1: -

As per section 194C(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 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 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.

The first payment does not exceed Rs.30,000/-

Subsequent payment exceeds Rs.30,000/- hence will be covered by sub-section (5).

However, since aggregate payment doesnot exceed Rs.1,00,000/-, no need to deduct TDS on aggregate amount in my opinion.

Query 2:- In case of Section 194J,

Provided that no deduction shall be made under this section-

(A) from any sums as aforesaid credited or paid before the 1st day of July, 1995; or

(B) where the amount of such sum or, as the case may be, the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed-

(i) thirty thousand rupees, in the case of fees for professional services referred to in clause (a), or

(ii) thirty thousand rupees, in the case of fees for technical services referred to in clause (b), or

(iii) thirty thousand rupees, in the case of royalty referred to in clause (c), or

(iv) thirty thousand rupees, in the case of sum referred to in clause (d) :

Hence, if aggregate payment exceed Rs.30,000, TDS needs to be deducted on entire amount.

[GUNASEKARAN K]

TDS u/s 194C - Applicability

Credited or Paid in Single Transaction exceeds Rs.30,000/- (Up to Rs.30,000/- Not Applicable)

or

Annual Threshold Limit exceeds Rs.1 Lakh i.e. Total Value of multiple bills value less than Rs.30,000/- (Example Bill 1: 30000 + Bill 2: 28000 + Bill 3 : 18000 + Bill 4 : 24000)

TDS is liable to deduct if any on of above condition hit in a transaction & TDS to be deducted on total amount paid or credited during the Financial Year.

TDS u/s 194J - Applicability

Credited or Paid amount exceeds Rs.30,000/- (Whether Single or Multiple Bills) in a single Financial Year.

TDS to be deducted on total amount paid or credited during the Financial Year.