Introduction and Applicability
Section 194C of the Income Tax Act, 1961, mandates the deduction of Tax Deducted at Source (TDS) on payments made to contractors, including transporters, for carrying out any work or providing any service. This section is applicable to various entities, including individuals (subject to tax audit under Section 44AB), companies, firms, co-operative societies, trusts, local authorities, and government bodies. It's crucial to note that Individuals and HUFs not subject to tax audit in the preceding financial year are exempt from TDS deduction under this section.
For transporters, the section specifically deals with payments related to the transportation of goods. Understanding the nuances of this section is critical to ensure compliance with TDS requirements, especially given the implications of non-compliance. This guidance note provides a detailed overview of the TDS provisions under Section 194C, focusing on TDS rates, threshold limits, exemptions for transporters, compliance requirements, and penalties, along with practical examples for better understanding.
TDS Rates and Threshold Limits
The TDS rates under Section 194C vary depending on the nature of the payee:
- 1% for payments made to Individuals/HUFs.
- 2% for payments made to other entities such as companies, firms, etc.
TDS under Section 194C is applicable only when the payment exceeds certain threshold limits:
- ₹30,000 for a single payment.
- ₹1,00,000 for aggregate payments made during the financial year.
For instance, if a company makes a single payment of ₹40,000 to a transporter, TDS will be deducted at the applicable rate (1% for an individual transporter, resulting in ₹400) as the payment exceeds the ₹30,000 threshold. Similarly, if aggregate payments to a transporter during the financial year exceed ₹1,00,000, TDS is applicable on the total amount, even if individual payments are below the single payment threshold.
Exemptions Available for Transporters
Transporters who own 10 or fewer goods carriages and furnish a valid declaration to the payer are exempt from TDS under Section 194C. This exemption is contingent upon the transporter providing their PAN along with a declaration stating the number of goods carriages owned.
Example: A transporter named Ashu owns 8 goods carriages and is scheduled to receive ₹1,20,000 from a company during the financial year. Ashu submits a declaration to the company stating that he owns 10 or fewer goods carriages. As a result, the company is not required to deduct TDS on the payment made to Ashu, provided the declaration is valid and retained on record.
If the transporter fails to submit the declaration, the payer must deduct TDS at the applicable rate, irrespective of the number of goods carriages owned. Therefore, it is essential for transporters to provide timely declarations to avoid unnecessary TDS deductions.
Compliance Requirements and Penalties
Both deductors and transporters must adhere to specific compliance requirements to avoid penalties. Deductors are required to verify the transporter’s declaration, deduct TDS as applicable, and file TDS returns within the prescribed timelines. Transporters must ensure that they provide the necessary declarations if claiming an exemption from TDS.
Failure to comply with these requirements can lead to significant penalties. Deductors may face interest and penalties under Sections 201(1A) and 271C of the Income Tax Act for failing to deduct TDS or not depositing it within the stipulated time. Transporters who do not provide the required declaration will lose the benefit of the TDS exemption and may face additional tax liability.
Illustration: Consider a scenario where a company pays ₹50,000 to a transporter for services rendered. The transporter has not provided any declaration, and the payment exceeds the ₹30,000 threshold. The company must deduct TDS at 2% (assuming the transporter is a firm), resulting in a deduction of ₹1,000. If the company fails to deduct this amount, it will be liable for interest on the unpaid TDS and may also face penalties for non-compliance.
Conclusion
The provisions under Section 194C regarding TDS on payments to transporters require meticulous attention to detail to ensure compliance. Deductors must apply the correct TDS rates, maintain accurate records of declarations provided by transporters, and file TDS returns timely. Transporters, in turn, must submit the necessary declarations promptly to avail themselves of the TDS exemption.
By adhering to the guidelines outlined in this note, both deductors and transporters can navigate the complexities of TDS under Section 194C effectively, ensuring compliance and avoiding potential penalties. This guidance note provides a comprehensive understanding of the TDS provisions relevant to transporters, supported by practical examples and compliance checklists to facilitate smooth tax management
Draft Declaration for Exemption from TDS
Transporters eligible for TDS exemption must submit a declaration to the payer. Below is a sample draft of the declaration:
[Transporter’s Letterhead]
Date: [DD/MM/YYYY]
To,
[Name of the Deductor]
[Address of the Deductor]
Subject: Declaration for Non-Deduction of TDS under Section 194C
Dear Sir/Madam,
I, [Transporter’s Name], holding PAN [AAAAA1234A], hereby declare that I own 10 or fewer goods carriages during the financial year 2024-25. As per the provisions of Section 194C of the Income Tax Act, 1961, I request you to kindly consider this declaration for the non-deduction of TDS on payments made to me for transportation services.
Thank you for your understanding.
Yours sincerely,
[Transporter’s Signature]
[Transporter’s Name]
[PAN: AAAAA1234A]
