Works executed under the National Rural Employment Programme (NREP) & Rural Landless Employment Guarantee Programme (RLEGP)-Applicability of the provisions of section 194C of the I.T. Act, 1961-Reg - Income Tax - 502/1988

Works executed under the National Rural Employment Programme (NREP) Rural Landless Employment Guarantee Programme (RLEGP)-Applicability of the provisions of section 194C of the I.T. Act, 1961-Reg Circular No. 502 Dated 27/1/1988 To All State Government Union Administrations Sir, Subject : Works executed under the National Rural Employment Programme (NREP) Rural Landless Employment Guarantee Programme (RLEGP)-Applicability of the provisions of section 194C of the I.T. Act, 1961-Reg. References have been received from certain quarters about the applicability of the provisions of section 194C of the Income-tax Act, 1961, to the payments made in respect of the works executed under the National Rural Employment Programme (NREP) and Rural Landless Employment Guarantee Programme (RLEGP). 2. According to the provisions of section 194C of the I.T. Act, any person responsible for paying any sum to any contractor for carrying out any work in pursuance of a contract between the contractor and the agencies specified therein shall, at the time of credit of such sum to the account of the contractor or payment thereof in cash etc. deduct an amount equal to 2% of such sum as income-tax on income comprised therein. Similarly, when a contractor makes payment to a sub-contractor in pursuance of a contract for carrying out the whole or any part of the work undertaken, he is required to deduct an amount equal to 1% of such sum as income-tax on income comprised therein. However, no such deduction is required to be made from any sum credited or paid in pursuance of any contract the consideration of which does not exceed Rs. 10,000. 3. According to the NREP Scheme, at the district level the entire work relating to planning, co-ordination, supervision and monitoring of implementation of the programme will be the responsibility of the District Rural Agencies. In the implementation of the programme, the Panchayati Raj institutions are actively involved. Voluntary organisations are also involved in such implementation. The wages under this programme are paid partly in foodgrains and partly in cash. There is a specific ban on employment of contractors for the execution of the work under the programme. 4. According to the RLEGP Scheme while preparing the work project, the State Government will indicate the implementation agencies for each project. There can be different implementing agencies for different work projects in a State. The projects can be entrusted to voluntary organisations/Panchayati Raj institutions also for implementation. The State Government will have the overall responsibility for planning, supervision and monitoring of the projects taken up under this programme. The wages under this programme are to be paid partly in foodgrains and partly in cash. This programme also specifically bans the employment of contractors for execution of work. It has been specifically laid down in the guidelines for implementation of RLEGP that the voluntary organisations should ensure that no contractors or middlemen or any such intermediary agencies are engaged in the execution of work. 5. Thus, it is clear that the programmes under the NREP and RLEGP are executed with the participation of the people and the Panchayati Raj institutions under the active supervision of the State Govts. in conformity with the guidelines framed by the Central Government. There is no contract between the village committee/voluntary agencies and the State Governments, which is sine qua non for attracting the provisions of section 194C. Moreover, these schemes specifically ban the employment of contractors/middlemen for the execution of the work undertaken under these schemes. 6. In view of the foregoing, the provisions of section 194C are not attracted in the case of payments made in respect of works executed under these programmes. Yours faithfully, (Sd.) B. Nagarajan Director (B) Central Board of Direct Taxes.