A lot of services requires a tax deduction at source. For example, a rent payment of over a threshold amount requires the tenant to deduct the TDS from the rent and deposit it in the income tax department. Similarly, labour charges also attract TDS. This deduction falls under section 194C and what it means that any person who hires a contractor needs to pay the tax before making the final payment to the contractor. It also includes the supply of labour which translates into labour charges. To reiterate, it can be said that the person who is responsible for making the payment for the labour should be deducting the TDS.
TDS on Labour Charges
The TDS on labour charges are applicable when any of the following entity hires the contractor.
- State or Central Government
- Municipal, Authority or any Entity under Government
- Private Company
- Co-operative Society
- Residential Societies and Other Societies
- University or any other firm.
The work under the contract can be of different types. As per the section, the major categorization includes advertising work, broadcast and other media-related work. It also consists of the transportation charges, catering and labour for manufacturing.
TDS on Labor Charges in Case of Sub-Contractors
Many times, the contractor may further hire a sub-contractor to get the job done. The sub-contract can be providing labour or other logistics. It is also possible that the sub-contractor is performing the full job or he is performing a specific part of the job. In such a case, the main contractor is responsible for paying the TDS for the sub-contractor. This TDS is to be deducted at the time of payment being made to the sub-contractor.
Payment of TDS on Labour Charges
If you are not sure when the TDS is to be paid, then let us help you a little. When you make the payment to the contractor or the subcontractor, the TDS should be deducted from the payment. Once that is done, you need to deposit the amount by sharing the PAN or TAN details on the tax deposit portal. As per the information available, the TDS is to be charged at 1% of the total payment. During the pandemic, the government further reduced the tax. From 14 May 2020 onwards, you are only required to pay a tax of 0.75%. This rate is applicable until 31 March 2021.
Eligibility of TDS on Labour Charges
Be it a contractor or a subcontractor; there can be a chance that the RDS does not apply to them. One major criteria for this could be that amount of payment being less than the threshold amount. As per the information available, the payment amount should not be less than Rs 30,000. What this means is that if the labour charges are over Rs 30,000, only then you need to deduct the tax and deposit it on behalf of contractor or sub-contractor.
Tax Slab for TDS on Labor Charge
In the section above, we have defined the TDS percentage, but there can be a slight variation to it. In the points below, you will find detailed information.
- Presently, the rates applicable for the payment to individual or HUF is 0.75%, but if the PAN is not available, then the rates are increased to 20%.
- If the payment is being made to any other individual who is not an Indian Citizen or who is not a part of HUF, then the rates applicable are 1.5%. Even in this case, the rates are 20% if the PAN details are not available.
Are there any Exceptions for TDS on Labour Charges?
There are certain exceptions where you might not be required to deduct the TDS on the labour charges. One such exception is when the government is availing the services. The exceptions can vary from case to case, and it is usually defined clearly in the contract. So, you can go through the details of the contract and consult a tax lawyer to get a clear picture of the TDS on the Labour Charges.
As mentioned earlier, there is no requirement of deducting the TDS when the payment amount is less than Rs 30,000. This clause exists in case of a one-time payment. What do you do when you have to make recurring payments throughout the year? In such a case, you do not have to make TDS deductions if the net payable amount for the annual year is less than Rs 1, 00,000. However, if you think that the amount will exceed Rs 1, 00,000 in the financial year, then you will have to deduct the TDS.
If the payment is made for personal use, you are not required to deduct the RDS.
When Should the TDS be deposited to the government?
There are also some rules when it comes to the depositing of TDS amount to the government. If you are dealing on behalf of the government entity, then it should be done on the same day. The general rule states that the payment should be made within seven days since when the deduction is made.
The contractor can obtain the TDS certificate, and they are digitally verified.
How to Claim Refund for the TDS?
You need to file the return for the TDS in case the tax deposited is more than the payable tax. In this case, we would recommend you to hire an expert or a tax consultant to do the work on your behalf. He will be able to help you in claiming the refund and preparing the statements.