Clarification regarding deduction of tax under section 194C of Income Tax Act, 1961

In Budget 2015-16, a clarification regarding deduction of tax under section 194C of Income Tax Act, 1961 (payments to transporters) was given by the Finance Minister.   unnamed The intention of the provisions of Finance (No. 2) Bill, 2009 was to exempt only small transport operators from the purview of TDS on furnishing of Permanent Account Number (PAN). This was to reduce the compliance burden on the small transporters. However, the current language of sub-section (6) of section 194C of the Act does not convey the desired intention. As a result, all transporters, irrespective of their size, are claiming exemption from TDS on furnishing of PAN. Under the existing provisions of section 194C of the Act- Payment to contractors is subject to tax deduction at source (TDS) at the rate of -1% in case the payee is an individual or Hindu undivided family and – 2% in case of other payees if such payment exceeds Rs. 30,000 or aggregate of such payment in a financial year exceeds Rs. 75,000. Prior to 1.10.2009, section 194C of the Act provided for exemption from TDS to an individual transporter who did not own more than two goods carriage at any time during the previous year. Subsequently, Finance (No.2) Act, 2009 substituted section 194C of the Act with effect from 1.10.2009, which inter alia provided for non- deduction of tax from payments made to the contractor during the course of plying, hiring and leasing goods carriage if the contractor furnishes his Permanent Account Number (PAN) to the payer. Thus, in the Budget 2015, it was proposed to amend the provisions of section 194C of the Act. Non-deduction of tax shall only be applicable to

  • the payment in the nature of transport charges (whether paid by a person engaged in the business of transport or otherwise).
  • made to a contractor who is engaged in the business of transport i.e. plying, hiring or leasing goods carriage
  • who is eligible to compute income as per the provisions of section 44AE of the Act (i.e. a person who is not owning more than 10 goods carriage at any time during the previous year) and
  • who has also furnished a declaration to this effect along with his PAN.

This amendment will take effect from 1st June, 2015. ____________________________________________________________________________________________________