Income Tax--Tax Deduction at Source

Section 194C versus Section 194J

V.K. Subramani

One of the smart legal amendments brought out in the last decade of the previous century and in the first decade of this century is the obligation to deduct tax at source. Prima facie deduction of tax at source provides trail for identification of the transaction and disallowance of expenditure for non-deduction of tax at source is yet another milestone in drafting of the legal provisions. The spiralling collection of taxes in the recent times must be attributed first to the introduction of TDS than the compliance mind set of the taxpayers.

In spite of giving credit for the TDS provisions which drag many as taxpayers into the regular roll, there are some dilemmas because of the overlap of the coverage of legal provisions such as the title given for this write up.

Section 194C says that any person responsible for paying any sum to any resident for carrying out any work in pursuance of a contract between the contractor and a specified person (assessee) shall at the time of credit of such sum to the account of the contractor or at the time of payment, whichever is earlier must deduct tax at source. The rate of TDS is 1% where the recipient is an individual or HUF. It is 2% where the recipient is others. Even holding the amount payable in a suspense account would attract TDS provisions and consequent disallowance in the event of non-deduction.