TDS on Freight Charges 2020 – 21 – Section 194C

TDS stands for Tax Deduction at Source, and the Section 194C of the Income Tax Act defines it clearly and concisely. It describes all the provisions, exceptions and other such things that apply to the TDS deductions for the contract payments. A lot of people may engage in the Freight of goods from one place to another. The Freight can be transported by various means. It can be transported via trucks, ship, aircraft or even via trains. If someone is availing freight services, then they also need to ensure that they deduct the TDS for the contractor or the vendor.

TDS on Freight Charges

Since you are on this page, it would be right to assume that you are a contractor who provides freight services or you are a person who is planning to avail freight charges. In this article, we will sum up all the details associated with the TDS on freight charges, and you can check out the details below. 

How much TDS should be deducted on Freight Charges?

Section 194C also defines the amount of TDS that should be deducted. The government often makes changes to this amount depending on the economic situation. During the lockdown, the government reduced the amount of TDS to give a push to the economy. In this section of the page, you will find the rate of deduction applicable to the TDS on Freight Charges. Check them out below.

  • The rate of deduction for an Indian Citizen of HUF was 1% before the lockdown; however, in mid-May, the government reduced the deductions to just 0.75%.
  • If you are dealing with partnership companies or anything else other than the individual or HUF, then the rate of deduction used to be 2%. It has also come down to 1.5%.
  • In both the cases listed above, the contractor must provide their PAN number to you. If you do not receive the PAN number from the contractor, then the deductions are 20% of the invoice amount.
  • It should be noted that the reduction in the rates is only applicable until 31 March 2021, and the rates are expected to return to the normal level after the Financial Year is over.
  • There is another clause for the situation where trucks are used for Freight Charge. If the PAN number is provided and if the number of trucks is less than ten, then there is no TDS that needs to be deducted. However, if the number of trucks is over ten, then the deductions should be made (0.75% or 1.5% as applicable). If the PAN number is not provided, then the TDS will be 20% irrespective of the number of trucks.

What happens if I do not have a PAN Number?

If the contractor doesn’t provide you with their PAN Number, the deductions are 20% of the invoice amount. These deductions are deposited in the suspense account only via the name of the contractor. The contractor needs to claim these deductions under his name by providing the PAN or TAN number.

How can I calculate the TDS on Freight Charges?

The TDS is calculated on the total invoice amount. However, this amount doesn’t include GST. So, when you are calculating the TDS, you need not consider the GST if the breakup is available. If in case, you do not have the split of the GST amount, then you are free to go ahead and deduct the TDS on the total invoice amount. The contractor or the service provider can make corrections while filing an ITR.

Are there any exemptions on TDS deductions on Freight Charges?

Below are the details of exemptions on TDS Deductions on Freight Charges

  • You need not deduct the TDS if the one-time payment is below Rs 30,000 however you would need to deduct the TDS if the amount exceeds even by Re 1.
  • If you are going to avail the freight services multiple times, then you would also have to look at the annual amount. If the yearly amount is less than Rs 1,00,000, then there is no need to deduct the TDS on Freight Charges, however, if this amount exceeds the given threshold, then the TDS should be deducted.

When do I need to deposit the TDS after making the deductions?

If you are paying digitally, then the TDS should be deducted before making the payment. If you are paying the contractor in cash, then you need to deduct the TDS at the time of the payment. If you are issuing a cheque or a draft, then you would need to deduct the TDS before issuing the instrument. It should be noted that the TDS should be deposited within seven days of the deduction.

Can a contractor claim refund of TDS on freight charges?

The TDS deductible on various payment is summed up when Form 16 is obtained. The contractor then needs to evaluate his taxable income, and he needs to understand if the advance tax is greater than the taxable income. In such cases, he can claim for the refund and get the excess tax back.

The Best Approach 

We recommend you to hire a CA Firm or a Tax Lawyer who can do the tasks for you. He can deduct and deposit the TDS. If you are a contractor, then he can also help you in filing the tax return.