TDS on Payments to Transporters- Amendment to Section 194C w.e.f. June 1, 2015 + Undertaking Format

Introduction

Section 194C of the Income Tax Act, 1961 prescribes that any payment to a contractor is subject to a Tax Deduction at Source (TDS) at the rate of:

• 1% in case the payee is an Individual or a Hindu Undivided Family, and
• 2% in case of other payees (i.e. partnership firm, company, trust, body of individuals or association of persons)

if such payment exceeds Rs. 30,000 per contract or aggregate of such payments of contracts in a financial year exceeds Rs. 75,000.

TDS on account of a contractor during the course of plying, hiring and leasing goods carriage

Earlier Provision

The earlier provision (upto May 31, 2015) provides that no deduction of tax is required from payments made to the contractor during the course of plying, hiring and leasing goods carriage if the contractor furnishes his PAN to the payer.

New Provision effective June 1, 2015

The new provision of Section 194C, as was informed earlier at the time of the Union Budget, restricts the cases for non-deduction of tax. Non deduction of tax will be available only for small transport operators owning not more than 10 goods carriages.

The relevant extract of the amended provision is as under:

“Section 194C Sub 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 plying, hiring and leasing goods carriages, where such contractor owns ten or less goods carriage 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.”

This provision comes into force from June 1, 2015.

Analysis:

If transporter is not owning more than 10 goods carriage at any time during the previous year, then we, as payers (Tax deductors) have to obtain a declaration from transporter along with his copy of PAN before credit or payment to transporter, whichever is earlier.

Download Format of Declaration to be obtained on the letter head of the Transport Contractor in case of non-deduction of tax at source u/s 194C (6) of the Income Tax Act, 1961

If the transporter is owning more than 10 goods carriage at any time during the year, then we, as payers are liable to deduct TDS at the time of paying charges to goods transporter at the rate of 1% or 2% as the case may be; based on the transport contractor’s status which can be identified from the 4^th alphabet of the PAN.

Conclusion:

Effective June 1, 2015 TDS will be applicable at the rate of 1% or 2%, as the case may be, in the case of all payments made to a contractor during the course of plying, hiring or leasing of goods carriage, except in cases where such contractor has furnished a Declaration.

The tax deduction will be required to be done at the time of credit of the amount payable to the account of the contractor (or to any other account) or at the time of payment, whichever is earlier.

- See more at: http://taxguru.in/income-tax/tds-payments-transporters-amendment-section-194c-wef-june-1-2015-undertaking-format.html#sthash.qjaac9WL.dpuf