As a freelancer or a business owner, you may have heard the term “contract under section 194c” being thrown around. If you are not familiar with what this means, it can be overwhelming and confusing. In this article, we will explain what contract under section 194c is and why it is important.
Contract under section 194c refers to the agreement between two parties where one party hires another party to carry out a specific job or project. This contract can be in the form of a written or verbal agreement and is typically used in the business world to outsource work.
Under section 194c of the Income Tax Act, any payment made to a contractor for carrying out a job or project is subject to a TDS deduction. TDS stands for tax deducted at source, which means that a certain percentage of the payment made to the contractor is deducted and paid to the government as tax.
The TDS deduction rate for contract under section 194c is 1% if the contractor is an individual or a Hindu Undivided Family (HUF), and 2% if the contractor is a partnership firm or a company. This TDS deduction applies to all payments made to the contractor during the financial year, and the contractor is required to file their income tax return and claim a refund for any excess TDS deducted.
It is important to note that the contract under section 194c applies only to work carried out in India. If the contractor is based outside of India, the TDS deduction rate may be different, and you may need to consult with a tax expert to ensure compliance.
In conclusion, understanding what contract under section 194c means is essential for any freelancer or business owner outsourcing work. By deducting the appropriate TDS amount from the payment made to the contractor, you can ensure compliance with the Income Tax Act and avoid any penalties or legal issues in the future. If you are unsure about the TDS deduction rate or any other aspects of the contract under section 194c, it is always best to consult with a tax expert to ensure compliance.
