Section 194C

Section 194C — the law in short

What the courts have decided on section 194C, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Shree Choudhary Transport Co. v Income Tax Officer Supreme CourtHelps department
  I am a transport contractor who hires trucks from individual owners and pays them freight. Does section 194C apply, and can section 40(a)(ia) disallow amounts I have already paid rather than merely owe?
  Yes to both. The Supreme Court held that section 194C applied to the payments the firm made to truck owners it engaged to carry the cement it had contracted to transport, so it was bound to deduct tax at source; that disallowance under section 40(a)(ia) is not confined to amounts outstanding at the year end but applies equally to expenses already incurred and paid; that the provision as introduced by the Finance (No. 2) Act, 2004 with effect from 1 April 2005 governed assessment year 2005-06; and that the amendment of 2014 reducing the disallowance to thirty per cent gave the firm no benefit. Splitting a single freight payment into two vouchers below Rs 20,000 did not escape section 194C.
• Palam Gas Service v CIT Supreme CourtHelps department
  I already paid my sub-contractors during the year and nothing was outstanding at 31 March — can section 40(a)(ia) still disallow the expense for not deducting TDS?
  Yes. The Supreme Court held on 3 May 2017 that the word "payable" in section 40(a)(ia) covers amounts actually paid as well as amounts still outstanding. Sections 194C and 200 require deduction at the time of credit or of payment, whichever is earlier, and payment over to the Government within the prescribed time; a person who ignores that obligation must bear the consequences the Act lays down, of which disallowance under section 40(a)(ia) is one. The view of the Punjab and Haryana, Madras and Calcutta High Courts was approved, and the Allahabad High Court's decision in CIT v. Vector Shipping Services (P) Ltd. was overruled.
• Japan Airlines Co Ltd v CIT Supreme CourtHelps taxpayer
  We pay landing and parking charges to the airport. Is that rent under 194-I at the higher rate?
  No. The charges pay for a bundle of services connected with operating aircraft at the airport — air traffic services, ground safety, aeronautical communication and compliance with safety standards — with use of the tarmac only incidental, so they are not rent under s.194-I and s.194C is the right provision.
• Hindustan Coca Cola Beverage P Ltd v CIT Supreme CourtHelps taxpayer
  I did not deduct TDS, but the person I paid has already paid tax on it. Can the department still recover it from me?
  Reported as holding that the tax cannot be recovered twice — once the payee has paid, the deductor is not liable for the tax again. Interest may still run for the period of delay.
• Madhumilan Syntex Ltd v Union of India Supreme CourtHelps department
  I deposited the TDS late but with interest. Can the company and its directors still be prosecuted?
  Yes. The offence under s.276B is complete once deducted tax is not credited to the Government within the prescribed time; depositing it later with interest is a civil consequence and does not wipe out the default. Directors identified as principal officers under s.2(35) were properly arrayed with the company under s.278B.
• Associated Cement Company Ltd v CIT Supreme CourtHelps departmentNo later treatment found
  My contract is only for loading bags, not a works contract, and much of what I pay is reimbursement of the contractor's wage bill. Must I still deduct under section 194C on the whole sum?
  Yes. The Supreme Court held that any work in section 194C(1) means any work, not a works contract, which is a term with a special connotation in tax law. The sub-clause itself includes supply of labour, which shows the wider intention. The deduction is of a percentage of the sum credited or paid, not of the contractor's income component; the words on income comprised therein show only that what is deducted is tax at source. And nothing in the sub-section allows the payer to exclude amounts paid to the contractor by way of reimbursement of wages he has paid his workers.
• CIT v Dr Balabhai Nanavati Hospital High CourtCuts both waysNo later treatment found
  After a survey the TDS officer says my consultant doctors are employees and wants 192 instead of 194J. Is he right?
  Not on these facts, and only part of the case was decided. On the doctors the High Court found no substantial question of law: they are appointed on probation for qualification and specialisation, receive no fixed monthly remuneration, are free to practise at other hospitals, get no PF or ESIC and no perquisites, attend according to patients' needs, and the hospital exercises no real supervisory control; the doctors had also returned the receipts as business or professional income. The separate maintenance-contract question was not answered — the Tribunal's order on it was set aside and the matter sent back for a contract-by-contract finding, and the assessee-in-default question on that limb goes with it.
• Pune Municipal Corporation v ACIT (TDS), Pune High CourtHelps taxpayerNo later treatment found
  I have been held an assessee in default under s.201 for not deducting s.194C and s.194LA tax when I issued TDR certificates instead of paying money. Is there an answer where the payment is wholly in kind?
  The Bombay High Court found a strong prima facie case and stayed the s.201 order, the demand and the s.271C penalty notice. Its prima facie view is that the words 'or by any other mode' in s.194C and in s.194LA must be read ejusdem generis with payment in cash or by cheque or draft, so those sections do not operate where the payment is made in kind by issuing transferable development rights. The court drew support for that reading from s.194B and s.194R, which do contain express machinery for a benefit paid wholly in kind and which is conspicuously absent from s.194C and s.194LA.
• CIT v Samsung Heavy Industries Co Ltd High CourtHelps taxpayerNo later treatment found
  I deducted 2% under 194C and the AO says it was 194J at 10%. Can he disallow the expense?
  No. Tax had in fact been deducted, so this is short deduction and not non-deduction, and s.40(a)(ia) does not reach short deduction. The Uttarakhand High Court dismissed the revenue's appeal against deletion of the disallowance.
• CIT (TDS)-2 v Santur Builders Pvt Ltd High CourtHelps taxpayerNo later treatment found
  The AO says our EDC paid to HUDA was 'rent' and has raised a s.201 demand for not deducting under s.194-I. Is that right?
  No. External Development Charges paid to the Haryana authority are not rent, so s.194-I is not attracted and a s.201(1)/201(1A) order built on s.194-I cannot stand. The Delhi High Court dismissed the Revenue's appeal, holding the point squarely covered by its own earlier decision in DLF Homes Panchkula. It also refused to let the Revenue rescue the order by switching to s.194C at the appeal stage, because s.194C was never the case the AO made.
• Puri Constructions Pvt Ltd v Addl CIT High CourtHelps departmentNo later treatment found
  I paid External Development Charges to HUDA/HSVP because the Town and Country Planning Department told me to. I have no contract with HUDA. Does s.194C still oblige me to deduct tax at source?
  Yes. The Delhi High Court rejected the developers' challenge and held that EDC payments fall within s.194C. The privity argument does not work: s.194C looks for a contract under which the contractor carries out work, not for a contract between the payer and the payee. Nor does s.196 rescue the developer, because HSVP is a legal entity distinct from the Government of Haryana. This is a different question from the one decided in DLF Homes Panchkula, which held EDC is not 'rent' under s.194-I. The two decisions sit side by side and do not conflict.
• CIT v Lalitpur Power Generation Co Ltd High CourtHelps taxpayerNo later treatment found
  My plant erection contract includes testing and commissioning. Can the AO carve that out and demand 194J?
  No. Where testing and commissioning form part of an indivisible contract for setting up a thermal power plant, the payments fall under s.194C as work; the consideration cannot be fragmented to create a fees-for-technical-services component under s.194J.
• PCIT v Maahi Milk Producer Co Ltd High CourtHelps taxpayerNo later treatment found
  I pay a dairy to process my milk. Do I deduct 2% under 194C or 10% under 194J?
  2% under s.194C. Processing of milk by a dairy is job work, not technical services — the Gujarat High Court approved the Tribunal's reliance on CBDT Circular No. 13/2006 dated 13 December 2006 to that effect, and the s.40(a)(ia) disallowance fell with the characterisation.
• DLF Homes Panchkula Pvt Ltd v JCIT High CourtHelps taxpayer
  Are External Development Charges paid to HUDA 'rent' under s.194-I? And if the AO picked the wrong section, can the department switch sections on appeal?
  EDC paid to the Haryana authority under the statutory licensing scheme is not rent, so s.194-I is not attracted. The Revenue did not even try to defend the Assessing Officer's reasoning; it asked instead for a remand so the officer could apply s.194C. The Court refused. An order under s.201 stands or falls on the reasoning the officer actually gave, and the reasoning here was fundamentally flawed. The s.201(1) and 201(1A) demands were set aside.
• PCIT v Asian Mills P Ltd High CourtHelps taxpayer
  I paid freight without TDS after taking the transporters' PANs. Can the AO still disallow the freight?
  No. The exclusion from the duty to deduct in s.194C(6) is complete the moment its substantive conditions are met, and from that point the payer has no authority to deduct at all; the obligation under s.194C(7) to furnish particulars arises at a much later point and its breach cannot revive a deduction obligation that never existed. Since s.40(a)(ia) operates only where tax was deductible and was not deducted, it had nothing to work on. On the facts the Tribunal had found that no prescribed authority stood nominated to receive the particulars, so filing them with Form 26Q was sufficient compliance. Two other issues went the same way: discounts to customers who took delivery into their own godowns were not rent under s.194-I, and depreciation on cars registered in directors' names but paid for and used by the company was allowed on beneficial ownership.
• CIT v Media World Wide P Ltd High CourtHelps taxpayerNo later treatment found
  I pay uplinking and bandwidth charges for my channel. Is that 194C work or 194J technical services?
  S.194C. The Court held first that no technical service was rendered at all: a standard, automated facility that anyone may use on payment of the prescribed fee is not a service rendered to the payer, whatever equipment is involved. Only then did it turn to s.194C, whose inclusive definition of 'work' specifically includes broadcasting and telecasting. Tax was rightly deducted under s.194C and there was no short deduction.
• Maple Logistics P Ltd v Pr Chief CIT High CourtHelps taxpayerSuperseded by amendment
  My refund is being withheld under s.241A because my case is in scrutiny. Is a scrutiny notice enough?
  No — but fix the year first. For AYs 2017-18 to 2022-23 the return had to be processed and the refund determined, and s.241A was the only route to hold it back: it needed a written, reasoned, approved order showing why paying THIS refund was likely to hurt the revenue, and repeating the words of the section, or pointing to the s.143(2) notice, is not a reason. Section 241A ceased to apply from 1 April 2023 (Finance Act 2023) and the withholding power now sits in s.245(2), which requires the same written reasons and the same previous approval of the Principal Commissioner or Commissioner. The reasoning below transfers, but for AY 2023-24 onwards the order to demand, and to attack, is a s.245(2) order.
• Pr. CIT (TDS) v National Health and Education Society — hospital consultants' fees fall under s.194J, not s.192 High CourtHelps taxpayer
  The TDS officer says our consultant doctors are really employees, that their fees are salary, and that we should have deducted under s.192 instead of s.194J. Is he right?
  Not on these facts. The hospital engaged Hospital Based Consultants and deducted under s.194J. The Assessing Officer held they were employees, that s.192 applied, and passed orders under s.201 treating the hospital as in default; the Commissioner (Appeals) and the Tribunal went against him on that point and the Revenue appealed under s.260A. The Bombay High Court held the question squarely covered by its own earlier Division Bench decision in Commissioner of Income-tax (TDS), Pune v Grant Medical Foundation (Ruby Hall Clinic), where the same Court had held that no relationship of employer and employee existed between a hospital and its consultant doctors and had answered the question in favour of the assessee. No substantial question of law arose, and all six appeals were dismissed with no order as to costs. Questions on s.194C versus s.194J for outsourced services and on drug handling charges were held to turn on findings of fact, and a question on the time limit for orders under s.201(1) was left open as academic.
• Pr CIT v Bharat Heavy Electricals Ltd High CourtHelps taxpayer
  Our erection and commissioning contractor uses its own engineers. Should we deduct under 194J, not 194C?
  No. Payments for construction, erection and commissioning of a plant do not become fees for technical services merely because the contractor deploys technical personnel to perform its contract; deduction under s.194C is correct.
• IVRCL-KBL (JV) v ACIT High CourtHelps taxpayer
  My joint venture bid for and won the contract, the whole of it was back-to-backed to a constituent member, and the government deducted TDS from the JV's bills. The Assessing Officer refuses the JV credit under Rule 37BA(2)(i), saying credit belongs to the member who did the work. Who gets it?
  The joint venture does. Rule 37BA(2)(i) displaces credit from the deductee to another person only where some provision of the Act makes the income assessable in that other person's hands, and only where the proviso's machinery has been followed - the deductee files a declaration with the deductor and the deductor reports the deduction in the other person's name. Neither condition was met, and the Court set aside the assessment orders to the extent they denied the JV credit.
• CIT v V.S. Dempo & Co. Pvt. Ltd. (Bombay High Court, Full Bench) — section 172 is referable to section 44B, and where it applies there is no warrant for Chapter XVII or section 195 High CourtHelps taxpayer
  We are an Indian exporter. We paid demurrage to a foreign shipping company without deducting tax and the Assessing Officer has disallowed the whole payment under section 40(a)(i), saying section 172 is for non-residents and we are a resident. Does the payer have to be a non-resident before section 172 can be invoked?
  No. A Full Bench of the Bombay High Court answered the referred question and held that s.172 and s.44B are to be read together — s.44B enacting the special provisions for computing the profits and gains of a non-resident's shipping business and s.172 enacting the scheme for the levy and recovery of tax on the ship — and that where s.172 governs, there is no warrant for applying the provisions in Chapter XVII for collection and recovery of tax and its deduction at source under s.195. The Court overruled the view in CIT v. Orient (Goa) Private Limited to the extent contrary to that, and directed the appeals to be listed before an appropriate Division Bench.
• CIT v PVS Memorial Hospital Ltd High CourtHelps departmentHigh Courts differ
  I deducted under 194C when 194J applied. Does that short deduction still trigger a 40(a)(ia) disallowance?
  Yes, on the Kerala High Court's view. Deducting under an inapplicable section is not deduction as required by Chapter XVII-B, so where professional services were paid for under s.194J and tax was deducted at the s.194C rate, the shortfall is treated as a failure to deduct and s.40(a)(ia) applies.
• CIT v Glenmark Pharmaceuticals Ltd High CourtHelps taxpayer
  I get a third party to manufacture my products to my formulation and under my brand, but he buys the raw material himself. Should I be deducting tax under section 194C?
  No, on those facts. The Bombay High Court held the contract was one of sale, not of work, so section 194C was not attracted and the company could not be treated as an assessee in default under section 201(1). What decides it is not the specifications or the trade mark but the material and the passing of property: the manufacturer sourced the raw material himself, worked at his own establishment on a principal to principal basis, and property passed only on delivery. The Court held clause (e) of the Explanation inserted by the Finance Act 2009 to be clarificatory of a position that had held the field for over three decades.
• East India Hotels Ltd v CBDT High CourtHelps taxpayer
  We book rooms and banquet facilities for staff and clients and the hotel bills us monthly. Is that a contract for work on which we have to deduct under section 194C?
  No. The Bombay High Court held that the facilities and amenities a hotel makes available to its customers are not "work" within section 194C, and quashed Circular No. 681 of 8 March 1994 to the extent it said that section 194C applied to payments made by customers to the hotel for availing them. The Court read "carrying out any work" as limited to work which, on being carried out, culminates in a product or result — constructing a building or a dam, laying a road or a railway line, erecting or installing plant. Paying a hotel bill is not that.
• BDA Ltd v ITO (TDS) High CourtHelps taxpayer
  My printer supplies labels made to my design but out of his own paper and ink at his own premises. Must I deduct tax under section 194C?
  No, on these facts. The Bombay High Court held that the supply of printed labels was a contract of sale and not a works contract, so section 194C did not apply, and it quashed the orders of the Tribunal, the Commissioner (Appeals) and the Income Tax Officer (TDS). The printer was an independent establishment supplying similar labels to other customers, it worked in its own premises with its own machinery, labour and raw material, and the assessee supplied nothing. That the labels were made to the assessee's specifications and could not be sold elsewhere did not convert the transaction, since the quantity was limited to the purchase order.
• Homi Phiroz Ranina v State of Maharashtra High CourtHelps taxpayer
  I am a non-executive director. The complaint under s.276B read with s.278B says only that I was in charge of and responsible to the company for the conduct of its business. Is that enough to put me on trial?
  No. The Bombay High Court held that a bare averment reciting the words of s.278B, with no material showing that the director was in fact in charge of the company's affairs and responsible for the conduct of its day to day business, does not disclose a prima facie case, and process should not have issued against such a director. The applicants, who were non-executive directors and two of whom were practising advocates who could not in law act as full-time directors, were discharged.
• Mohammad Yunus v ITO, Ward-1 & TPS, Kalaburagi ITATHelps taxpayerNo later treatment found
  The Assessing Officer has disallowed 30 per cent of my purchases under s.40(a)(ia) for not deducting s.194Q TDS, but the seller had already collected TCS under s.206C(1H) and it shows in my Form 26AS. Does that answer the disallowance?
  Yes, in principle. The Tribunal held that where the seller has already collected tax at source under s.206C(1H) on the same transaction, the Board's instructions on s.194Q are clear that no deduction under s.194Q is required, and restored the matter to the Assessing Officer to verify the Form 26AS entries. The concession comes from para 4.9.5(v) of CBDT Circular No. 13/2021 and is available only for the years in which s.206C(1H) was in force — in practice AY 2022-23 to AY 2025-26.
• HCC CP PL JV v ITO ITATHelps taxpayer
  The Assessing Officer has withdrawn my joint venture's TDS credit, saying section 238(1) gives the refund to the constituent partners and not to the JV. Can he do that?
  Not on these facts. Section 238(1) transfers the right to refund only where the income of one person is in fact included in the total income of another; where the joint venture itself credited the gross contract receipts as its revenue and debited the back-to-back payments to its constituents as expenses, the profit or loss from the contract was disclosed in the JV's own hands, so section 238(1) is not attracted and credit under Rule 37BA(1) follows the person to whom the payment was made and in whose name the tax was deducted.
• Addl CIT v Quippo Oil & Gas Infrastructure Ltd ITATHelps taxpayerNo later treatment found
  I took the transporters' PANs but slipped on the 194C(7) reporting. Does that cost me the deduction?
  No. S.194C(6) and s.194C(7) are independent: the PAN removes the obligation to deduct, while s.194C(7) is only a reporting requirement, and a lapse there cannot revive a deduction obligation that never arose. S.40(a)(ia) bites only where tax was deductible and not deducted.
• M/s United Investments v ACIT ITATHelps taxpayer
  The officer says my long-term capital loss on listed shares cannot even be determined, because gains on those shares would have been exempt under s.10(38). Is there authority the other way?
  Yes. The Kolkata Tribunal held that the judicial concept that 'income' includes 'loss' applies only where the entire source of income falls outside the charging provisions; where the source — capital gains — remains chargeable and s.10(38) exempts only one specie of income arising from it, the concept does not apply. It directed the Assessing Officer to assess the long-term capital loss on the sale of listed shares and to allow its carry forward.
• ACIT v SDV International Logistics Ltd ITATHelps taxpayerNo later treatment found
  My employees claim HRA and home loan interest together. Must I treat that as a double benefit?
  No, not on these facts. The point was ground 2 of a composite order under s.201 and s.271C. The first appellate authority had held the exemption and the interest deduction to be two independent provisions, each with its own conditions, and the Tribunal upheld that because the department could not controvert it, so the short deduction and the consequential penalty both fell away. The employees concerned had let out the houses they owned and were living in rented premises, with the whole of the interest set against rental income and the exemption claimed on the rent they actually paid.
• DCIT v Laboratories Griffon P Ltd ITATHelps taxpayerSuperseded by amendment
  My contract manufacturer buys his own raw material and makes goods to my specification. Do I deduct TDS?
  No, on that arrangement. Under the Explanation to s.194C, manufacture or supply of a product to a customer's specification is 'work' only where the material is bought from that customer; where the manufacturer buys it from anyone else the transaction is a sale on principal-to-principal basis and s.194C is not attracted.
• Dish TV India Ltd v ACIT ITATHelps taxpayerNo later treatment found
  Two High Courts disagree on short deduction and mine has not ruled. Which view applies to me?
  The one favourable to the assessee. Where two non-jurisdictional High Courts differ and the jurisdictional High Court has not ruled, the Mumbai Tribunal adopted the assessee-favourable view, so deducting 2 per cent under s.194C where the officer said 10 per cent under s.194J attracted no disallowance under s.40(a)(ia): there is nothing in that section to treat an assessee as a defaulter where there is only a shortfall in deduction. The Tribunal did not reason the tie-break for itself - it adopted the reasoning of two coordinate Benches and held itself bound to follow them.
• ACIT v St Mary's Rubbers P Ltd ITATHelps taxpayerNo later treatment found
  We only reimbursed actual expenses billed separately. Was TDS under 194C required on those amounts?
  No. A pure reimbursement carries no income in the recipient's hands, so there is nothing to deduct on under s.194C and no disallowance under s.40(a)(ia) can follow. What matters is that the expenses were separately billed with no profit or service element added.
• Statutory position — s.194-I: two per cent on plant, machinery or equipment and ten per cent on land, building, furniture or fittings, on a threshold that became fifty thousand rupees a month on 1 April 2025 CBDT Circulars & InstructionsCuts both ways
  I pay rent for a warehouse and I also hire a generator on a monthly charge. Do I deduct under section 194-I, at what rate on each, and from what figure does the obligation start — is it an annual total or a monthly one?
  Section 194-I sets two rates on one kind of payment: two per cent where the rent is for the use of any machinery or plant or equipment, ten per cent where it is for the use of any land or building (including a factory building), land appurtenant to a building, furniture or fittings, and both have stood since 1 October 2009. The threshold is the part that moved — until 31 March 2025 it was an annual aggregate of two hundred and forty thousand rupees paid to a payee, and from 1 April 2025 the first proviso was substituted so that the test is now whether the rent credited or paid "for a month or part of a month" to that payee exceeds fifty thousand rupees, so a payer who is still adding up the year has the wrong test. The section does not reach an individual or a Hindu undivided family unless the second proviso brings them in on turnover, and the only exclusion written into the section itself is for rent paid to a real estate investment trust on a real estate asset referred to in clause (23FCA) of section 10. All of this is the Income-tax Act, 1961, which the CBDT's own transition FAQ says stands repealed on 1 April 2026. For a credit or payment on or after that date the corresponding provision is serial number 2(ii) of the Table to section 393(1) of the Income-tax Act, 2025, which carries the same two rates and the same fifty-thousand-a-month threshold.
• Statutory position — s.194J: two per cent on technical fees and film royalty, ten per cent on everything else, and a fifty thousand rupee threshold that never reaches a director CBDT Circulars & InstructionsCuts both ways
  I pay a consultant, I pay an engineering firm for technical work, and I pay my company's non-executive director a sitting fee. Do I deduct two per cent or ten per cent on each, and does the fifty thousand rupee limit apply to all three?
  Section 194J does not have one rate. Since 1 April 2020 it has two, and which one you use depends on which limb of sub-section (1) the payment falls into: two per cent for fees for technical services that are not professional services and for royalty that is consideration for the sale, distribution or exhibition of cinematographic films; ten per cent for everything else the section catches — professional fees, director's remuneration, other royalty and a non-compete sum under s.28(va) — and two per cent again, under a separate proviso, where the payee is engaged only in the business of operation of a call centre. The threshold in the first proviso is fifty thousand rupees, raised from thirty thousand by the Finance Act, 2025 with effect from 1 April 2025, and it is set out limb by limb for clauses (a), (b), (c) and (d) only — clause (ba), the director limb, is not in that list, so a single rupee of director's fee carries tax. An individual or Hindu undivided family is outside the section altogether unless the second proviso pulls them back in, and then only for fees for professional or technical services. All of this governs a sum credited or paid up to 31 March 2026: the Income-tax Act, 1961 stands repealed on 1 April 2026, and for a payment on or after that date the governing provision is section 393(1), Table, Serial No. 6(iii) of the Income-tax Act, 2025, which carries the same two rates and the same fifty thousand rupee threshold.
• Statutory position — s.194-IB and s.194M: the once-a-year deduction on rent, the cap that operates only under s.206AA, the gateway that keeps most individuals out of s.194M, and why neither needs a TAN CBDT Circulars & InstructionsCuts both ways
  I am an individual paying Rs 70,000 a month rent, and separately I have paid an interior contractor Rs 62 lakh for my own house. When exactly do I deduct, how much, and do I need a TAN?
  Under section 194-IB you deduct once, not monthly: the tax is deducted at the time of credit of rent for the last month of the previous year, or the last month of the tenancy if you vacate during the year, or at the time of payment of that rent, whichever is earlier, and the rate is two per cent of the income by way of rent, substituted for five per cent with effect from 1 October 2024. Under section 194M you deduct two per cent, again substituted for five per cent from the same date, but only if you are not a person required to deduct under section 194C, 194H or 194J, and only if the sum or aggregate of sums credited or paid to that resident during the financial year exceeds fifty lakh rupees. Neither section requires a TAN: section 194-IB(3) and section 194M(2) each disapply section 203A.
• Statutory position — s.194M and s.194-IB: the rate fell from five per cent to two per cent on 1 October 2024 CBDT Circulars & InstructionsCuts both waysNo later treatment found
  My client is an individual paying a contractor and also paying rent. He has no TAN. What does he deduct, and at what rate?
  Two per cent under either section, for anything on or after 1 October 2024; five per cent before that. Section 194M applies to an individual or HUF not already covered by s.194C, s.194H or s.194J who pays a resident more than fifty lakh rupees in a financial year for contract work, commission or brokerage or professional fees. Section 194-IB applies to an individual or HUF outside the second proviso to s.194-I who pays a resident rent exceeding fifty thousand rupees for a month or part of a month. Neither section requires a TAN, because s.203A is disapplied in both.
• Statutory position — s.194C: one per cent for an individual or HUF and two per cent for everyone else, the thirty thousand and one lakh thresholds, and the material-bought-from-a-third-party carve-out that takes a contract outside "work" CBDT Circulars & InstructionsCuts both ways
  I pay a fabricator to make parts to my drawings and I pay lorry owners to move my goods. Do I deduct under section 194C, at what rate, and at what figure does the obligation start — is it thirty thousand rupees or one lakh?
  Both figures are live and they do different jobs. Section 194C(5) says no deduction is to be made where the single sum credited or paid does not exceed thirty thousand rupees, and its proviso says that once the aggregate of such sums in the financial year exceeds one lakh rupees you must deduct under the section anyway. So a single bill of Rs 35,000 is caught on its own, and a run of Rs 12,000 bills is caught the moment the year's total passes Rs 1,00,000. The rate is one per cent where the payee is an individual or a Hindu undivided family and two per cent in every other case. Whether the fabrication is "work" at all depends on whose material is used: manufacturing to your specification out of material bought from you (or from an associate of yours) is "work"; the same job done out of material the fabricator bought from anyone else is expressly excluded, and that exclusion is the line between section 194C and a contract for sale. All of this is the 1961 Act, which the CBDT's own transition FAQ says stands repealed on 1 April 2026: for a credit or payment on or after that date the corresponding provision is section 393(1) of the Income-tax Act, 2025, which carries the same rates and the same two figures.
• Statutory position — s.197: the Assessing Officer may certify a lower rate, or nil, for a listed section, but only on the payee's application and only for a period of the previous year — the 1961 Act position, for deductions up to 31 March 2026 CBDT Circulars & InstructionsCuts both ways
  My money is stuck. Every invoice I raise has tax deducted at the full rate, my actual tax for the year is far less than the deductions, and I only get it back a year later when the refund comes. Somebody told me to apply for a lower-deduction certificate under section 197. What does section 197 actually say — which payments does it cover, what does the Assessing Officer have to be satisfied about, what form do I file, and can the certificate be backdated to cover the deductions already made?
  Section 197(1) lets the payee apply to the Assessing Officer for a certificate that the payer may deduct at a lower rate, or not at all. It is not open-ended: it works only for the sections named in it, and the Assessing Officer must be satisfied that “the total income of the recipient justifies” the lower rate. The list is sections 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194-I, 194J, 194K, 194LA, 194LBA, 194LBB, 194LBC, 194M, 194-O, 194Q and 195 — 194LBA was added by Act No. 8 of 2023 with effect from 1 April 2023 and 194Q by Act No. 15 of 2024 with effect from 1 October 2024. Section 197(2) then binds the payer: once a certificate is given, he deducts at the certified rate, or nothing, until the Assessing Officer cancels it. Section 197(2A) is the rule-making power, and the rules made under it are rule 28 (application in Form No. 13, filed electronically), rule 28AA (how the rate is worked out and how long the certificate lasts) and rule 28AB (a no-deduction certificate for trusts and other section 139(4C) filers). Nothing in the section or the rules confers a power to backdate a certificate, and in substance it operates forward: rule 28AA(4) sends it to the named deductor, who cannot un-deduct months already past. From 1 April 2026 this machinery is gone — the Income-tax Act, 1961 was repealed by section 536 of the Income-tax Act, 2025 and the successor is section 395 of the 2025 Act, applied for in Form No. 128 under rule 213 of the Income-tax Rules, 2026, and from the same date section 395(6) lets that application go to a prescribed income-tax authority instead of the Assessing Officer.
• CBDT Circular 1/2008 CBDT Circulars & InstructionsHelps taxpayer
  We pay cooling charges to a cold storage for our stock. Is that rent under s.194-I at 10%?
  No. The main function of a cold storage is preservation of perishable goods by a mechanical process and storage is only incidental; the customer gets no right to use any demarcated space or the machinery and does not become a tenant. Section 194-I does not apply, and the Board has directed that s.194C applies to the cooling charges instead.
• CBDT Circular No. 723 dated 19 September 1995 — where section 172 applies, sections 194C and 195 do not, and the shipping agent steps into the shoes of his non-resident principal CBDT Circulars & InstructionsHelps taxpayer
  We pay ocean freight and demurrage to a foreign shipping line, usually through its Indian agent, and we do not deduct tax. The Assessing Officer is disallowing the whole payment under section 40(a)(i). Is there anything from the Board on this?
  Yes, and it is directly in point. Circular No. 723 dated 19 September 1995 states that s.172 is a self-contained code for the levy and recovery of tax, ship-wise and journey-wise, that its provisions apply notwithstanding anything contained in other provisions of the Act, and that "Therefore, in such cases, the provisions of sections 194C and 195 relating to tax deduction at source are not applicable." Paragraph 5 extends that to payments routed through agents: since the agent acts on behalf of the non-resident owner or charterer, he steps into the shoes of the principal, and accordingly s.172 applies and ss.194C and 195 do not.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.