Section 194C of the Income-tax Act, 1961--Deduction of tax at source from payments made to contractors and sub-contractors--Instructions regarding - Income Tax - 613/1991

Section 194C of the Income-tax Act, 1961--Deduction of tax at source from payments made to contractors and sub-contractors--Instructions regarding. Circular No. 613 Dated 14/11/1991 Reference is invited to the Board's Circular No.539 [F.No. 275/89/89-IT(B)] dated 13th July, 1989 (See [1989] 179 ITR (St.) 24), on the above subject. 2. According to the provisions of section 194C of the Income-tax Act, 1961, any person responsible for paying any sum to any resident contractor for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and the bodies specified therein shall, at the time of credit of such sum to the account of the contractor, or 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 two per cent. of such sum as income-tax on income comparised therein. The bodies are: (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. 3. Similarly, when a contractor makes payment of a sum to a resident sub-contractor in pursuance of a contract with the sub-contractor for carrying out the whole or any part of the work undertaken by him, he is required to deduct an amount equal to one per cent. of such sum as income-tax on income comprised therein. 4. The amount of income-tax to be deducted at the aforesaid rates is to be further increased by a surcharge at the following rates: ( i ) in a case where the payee is a non-corporate resident person 12% ( ii ) in a case where the payee is a domestic company 15% 5.1 No deduction of tax is, however, required to be made from any sum credited or paid in pursuance of a contract, referred to in the foregoing paragraphs, if the consideration for the contract does not exceed Rs. 10,000. 5.2 Further, where the Assessing Officer is satisfied that the total income of a contractor or a sub-contractor justifies the deduction of income-tax at a lower rate or no deduction of income-tax, the Assessing Officer can give to him such certificate as may be appropriate. For this, an application has to be made to the Assessing Officer in Form No. 13C. During the validity of this certificate, deduction of tax at source will be made in accordance with the direction given in the certificate. 6. The responsibilities, obligations, etc., under the Income-tax Act, of the persons deducting tax at source, are as follows:-- (a) According to the provisions of section 200, any person deducting any sum in accordance with the provisions of section 194C is required to pay, within the prescribed time, the sum so deducted to the credit of the Central Government, in the prescribed manner (vide rule 30 of the Income-tax Rules, 1962). In the case of deduction by or on behalf of the Government, the sum has to be paid on the day of the deduction itself. In other cases, normally, the sum has to be paid within one week from the last day of the month in which the deduction is made. If a person fails to deduct tax at source, or, after deducting, fails to pay the tax to the credit of the Government, he shall be liable to action in accordance with the provisions of section 201. Sub-section (1A) of section 201 lays down that such person shall also be liable to pay simple interest at fifteen per cent. per annum of the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. Further, section 271C lays down that if a person fails to deduct tax at source, he shall be liable to pay, by way of penalty, a sum equal to the amount of tax not deducted by him. In this regard, attention is also invited to the provisions of section 276B, which lays down that if a person fails to pay to the credit of the Central Government within the prescribed time the tax deducted at source by him, he shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine. (b) According to the provisions of section 203, every person deducting tax at source is required to furnish a certificate to the effect that tax has been deducted and to specify therein the amount so deducted and certain other particulars. The certificate has to be furnished in Form No.16B, within the prescribed period of one month and fourteen days to the person to whose account credit is given or to whom payment is made, by any mode, as the case may be. Form No.16B is printed by the Central Government and can be procured from the Income-tax Department on payment of a nominal consideration. Detailed instructions regarding the use of these forms have been issued in Board's Circular No.597 [F.No.275/42/91- IT(B)], dated 27th March, 1991 ([1991] 189 ITR (St.) 32). However, with a view to removing difficulties, if any, faced by the tax deductors in obtaining Form No.16B, the Board have allowed the use of the old Form No.16 also for issuing certificates of tax deducted at source, till 31-12-1991. Instructions in this regard have been issued in Board's Circular No.607 [F.No.275/75/91-IT(B)] dated 4th July, 1991 (See [1991] 190 ITR (St.)88). If a person fails to furnish a certificate as required under section 203, he shall be liable to pay by way of penalty under section 272A, a sum which shall not be less than Rs.100 but which may extend to Rs.200 for every day during which the failure continues. (c) According to the provisions of section 203A, it is obligatory for all persons responsible for deducting tax at source to obtain and quote the tax deduction account number (TAN) in the challans, TDS certificates, returns, etc. Detailed instructions in this regard are available in Board's Circular No.497 [F.No.275/118/87-IT(B)] dated 9-10-1987 (See [1988] 169 ITR (St.) 54). If a person fails to comply with the provisions of section 203A, he shall be liable to pay by way of penalty under section 272BB, a sum up to Rs.5,000. (d) According to the provisions of section 206 read with rules 36A and 37 of the Income-tax Rules, the prescribed person in the case of every office of Government, the principal officer in the case of every company, the prescribed person in the case of every local authority or other public body or association, every private employer and every other person responsible for deducting tax at source from payment to contractor or sub-contractor, shall prepare and deliver by the 30th June following the financial year an annual return of deduction of tax under section 194C. This return is to be furnished, in Form No.26C, to the designated/concerned Assessing Officer. It may be noted that a copy of each TDS certificate issued during the financial year should be enclosed with the annual return. If a person fails to furnish in due time the annual return, he shall be liable to pay, by way of penalty under section 272A, a sum which shall not be less than Rs.100 but which may extend to Rs.200 for every day during which the failure continues. The maximum penalty will, however, not exceed the amount of tax which was deductible at source. 7. These instructions are not exhaustive and are issued only with a view to helping the persons responsible for making deduction of tax at source under section 194C. In case any assistance is required, the Assessing Officer concerned or the local Public Relations Officer of the Income-tax Department may be approached. 8. The contents of this Circular may please be brought to the notice of all concerned. (Sd.) Rajesh Chandra, Under Secretary to the Government of India. Form No. 13C [ See rule 28(2)] Application for a certificate under section 194C(4) of the In come-tax Act, 1961, relating to deduction of income-tax from payments made to contractors and sub-contractors To The Assessing Officer ..................................................................... ..................................................................... Sir, I,..................…………………..., of………........................., do hereby declare that my total income (including income [name] [address] comprised in payments of the nature referred to in section 194C of the Income-tax Act, 1961) computed in accordance with the provisions of that Act for the previous year relevant to the was less than the minimum liable to income-tax assessment year 19...-19.... ________________________________________________________ and I have no reason to expect that my total income (computed as aforesaid) for the amounted to Rs. ..................................................................... three assessment years next following will increase substan tially. 2. I, therefore, request that a certificate may be issued to the person(s) responsible for paying any sum in pursuance of the contract, particulars of which are given in the Schedule hereto, not to deduct income-tax authorising him/them _______________________________________________ at the time of credit to deduct income-tax at the rate of......per cent of such sum(s) to my account or, as the case may be, payment thereof to me. 3. I hereby declare that what is stated in this application is correct. ........................................................... Signature Date................. ........................................................... Address ........................................................ Permanent Account Number SCHEDULE Sl. No. Full name and address of the authority/person with whom the contract was made Date of the contract Nature of the contract Date by which work on the contract would be completed Sums expected to be credited/paid in pursuance of the contract during the current previous year and each of the three immediately succeeding years (1) (2) (3) (4) (5) (6) Date.......................... .................................... Signature