TDS to be deducted from Transporter U/s 194C- Applicable from 1st June, 2015

It is Pro­posed in Finance Bud­get 2015 that 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 at the rate of 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.

The mem­o­ran­dum explain­ing the pro­vi­sions of Finance (No.2) Bill, 2009 indi­cates that the inten­tion was to exempt only small trans­port oper­a­tors (as defined in sec­tion 44AE of the Act) from the purview of TDS on fur­nish­ing of Per­ma­nent Account Num­ber (PAN). Thus, the inten­tion 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 and as a result all trans­porters, irre­spec­tive of their size, are claim­ing exemp­tion from TDS under the exist­ing pro­vi­sions of sub-sec­tion (6) of sec­tion 194C of the Act on fur­nish­ing of PAN.

As there is no ratio­nale for exempt­ing pay­ment to all trans­porters, irre­spec­tive of their size, from the purview of TDS, it is pro­posed to amend the pro­vi­sions of sec­tion 194C of the Act to express­ly pro­vide that the relax­ation under sub-sec­tion (6 ) of sec­tion 194C of the Act from 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 an con­trac­tor who is engaged in the busi­ness of trans­port i.e. ply­ing, hir­ing or leas­ing goods car­riage and 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.