Meaning

Any person responsible for paying any sum to the resident contractor for carrying out any work (including the supply of labour), in pursuance of a contract between contractor and the following:

• The Central Government or any State Government
• Any local authority
• Any corporation established by or under a Central, State or Provisional Act
• Any Company
• Any Cooperative Society
• Any trust
• Any university or deemed university
• Any Firm
• Any Government of a foreign state or a foreign enterprise or an association or body established outside India
• any person being an individual or HUF or an AOP or BOI, if such person-

         a) does fall under any of the preceeding sub clauses and

        b) is liable to audit of accounts under clause (a) or clause (b) of sction 44AB during the financial year immediately preceeding the financial year in which such sum is credited or paid to the account of the contractor.

Meaning of Work under this section

Work includes:

• advertising
• broadcasting and telecasting including production of programmes for such broadcasting or telecasting 
• carriage of goods or passangers by any mode of transport other than by railways
• catering
• manufacturing or supplying a product according to the requirement or specifications of a customer by using material purchased from such customer.

Meaning of Subcontractor

Sub Contractor would mean any person who enters into a contract with the contractor for carrying out or supply of labour for carring out the whole or part of the work undertaken by a contractor under a contract with any of the authorities or for the supply of, whether whole or partly, any labour which the contractor has undertaken to supply in terms of his contract with any of the authorities mentioned under this section.

When TDS shouldnot be deducted

• Any sum credited or paid in pursuance of any contract, the consideration of which does not exceed Rs.30,000 for individual contract.
• The agreegate of sum credited or likely to be credited during a financial year does not exceed Rs. 1,00,000(1 Lacs).
• Amount is paid or payable to a resident contractor during the course of plying, hiring or leasing goods carriage ,such operator furnishes PAN to the payer. If such contractor owns 10 or less goods carriages at any time during a previous year and furnishes a declaration to that effect alongwith is PAN to the person paying or crediting the sum.

Provision to Deduct TDS

Any person responsible for making payment to any contractor or sub contractor shall deduct TDS at the time of

actual payment to the payee or

at the time of credit to the accounts of the payee, whichever is earlier.

Rate of TDS Deduction

TDS should be deducted at the following rates:

• 1% if payment is made to the indiviadual or HUF
• 2% if payment is made to any other person

Note: If PAN of recepient is not available , then tax shall be deducted at the rate of 20%.

Is TDS to be deducted on GST charged on the bill?

No, TDS would be decuted only on the taxable value.

E.g:- A Ltd. has entered into a contract to buy shirts from B Ltd. As per the designs and specifications given to it. For this A ltd. Sold necessary raw materails to B ltd. For P.Y. 2020-21, Bltd has raised following invoices on A ltd: 

In the present case A will deduct TDS on Rs. 60,000 against invoice 001 and on Rs. 45,000 against invoice No 002.