Circular No.

681 dated 8-3-94

Circular No: 681
Date of Issue: 8.3.1994
Section(s) Referred : 194C
Statute: Income-Tax Act

Subject: Deduction of income-tax at source

under section 194C of the Income-tax Act, 1961,
from payments made to contractors/sub-
contractors-Supreme Court judgment dated
23rd March, 1993, in Associated Cement Co. Ltd.
v. CIT-Instructions-Regarding.

Sub-section (1) of section 194C of the Income-tax Act,

1961, lays down that any person responsible for paying
any sum to any resident (herein-after referred to as
”contractor”) for carrying out any work (including
supply of labour for carrying out any work) in pursuance
of a contract between the contractor and the bodies
mentioned therein shall, at the time of credit of such
sum to the account of the contractor or payment thereof
in cash or by issue of a cheque or draft or by any other
mode, whichever is earlier, deduct an amount equal to 2
per cent. of such sum as income-tax on the income
comprised therein.

2. Sub-section (2) of section 194C of the Income-tax Act,

1961, lays down that when a contractor makes payment
of any sum to a resident sub-contractor in pursuance of
a contract made with him for carrying out the whole or
any part of the work undertaken by the contractor, or,
for supplying any labour, the contractor shall deduct an
amount equal to 1 per cent. of such sum as income-tax
on the income comprised therein.

3. Section 194C was introduced with effect from 1st

April, 1972. Shortly after its introduction, the Board
issued Circulars No. 86, dated 29th May, 1972 (F. No.
275/9/72-ITJ), No. 93, dated 26th September, 1972 (F.
No. 275/100/72-ITJ), and No. 108, dated 20th March,
1973 (F. No. 131(9)/ 73-TPL), in this regard.

4. Some of the issues raised in the above-mentioned

circulars need to be reviewed in the light of the
judgment dated March 23, 1993, delivered by the
Supreme Court of India in Civil Appeal No. 2860(NT) of
1979- Associated Cement Co. Ltd. v. CIT [1993] 201 ITR
435.

5. The Supreme Court has held that “. . . there is nothing

in the sub-section which could make us hold that the
contract to carry out a work or the contract to supply
labour to carry out a work should be confined to ‘ works
contract ‘ . . .”. Their Lordships have further held that ” ‘
Any work ‘ means any work and not a ‘ work contract ‘,
which has a special connotation in the tax law . . . ‘ Work
‘ envisaged in the sub-section, therefore, has a wide
import and covers ‘ any work ‘ which one or the other of
the organisations specified in the sub-section can get
carried out through a contractor under a contract and
further it includes obtaining by any of such
organisations supply of labour under a contract with a
contractor for carrying out its work which would have
fallen outside the ‘ work ‘ but for its specific inclusion in
the sub-section”.

6. It may be pointed out that this appeal before the

Supreme Court was by virtue of a special leave petition
against the judgment in Writ Petition No. 2909 of 1978
of the Patna High Court in the case of Associated
Cement Co. Ltd. v. CIT [1979] 120 ITR 444. The Patna
High Court, while dismissing the writ petition of the
aforesaid company, observed that ” In a very broad
sense, a work done by one person is service rendered to
another and indeed one of the dictionary meanings of
the word ‘ service ‘ is work “.

7. The conclusion flowing from the aforesaid judgments

of the Supreme Court and the Patna High Court is that
the provisions of section 194C would apply to all types of
contracts including transport contracts, labour
contracts, service contracts, etc. In the light of these
judgments, the Board have decided to withdraw their
above mentioned Circulars Nos. 86 and 93 and para 11
of Circular No. 108 and issue the following guidelines in
regard to the applicability of the provisions of section
194C:–

(i) The provisions of section 194C shall apply to all types

of contracts for carrying out any work including
transport contracts, service contracts, advertisement
contracts, broadcasting contracts, telecasting contracts,
labour contracts, materials contracts and works
contracts.
(ii) No deduction at source under section 194C shall be
required to be made if the consideration for the contract
does not exceed the prescribed amount which at present
is Rs. 10,000 (ten thousand only).

(iii) The provisions of section 194C would not apply in

relation to payments made for hiring or renting of
equipments, etc.

(iv) The provisions of section 194C would not apply in

relation to payments made to banks for discounting
bills, collecting/receiving payments through
cheques/drafts, opening and negotiating letters of credit
and transactions in negotiable instruments.

(v) Service contracts would be covered by the provisions

of this section since service means doing any work as
explained above.

(vi) The provisions of this section will not cover

contracts for sale of goods.

(a) Since contracts for the construction, repair,

renovation or alteration of buildings or dams or laying of
roads or airfields or railway lines or erection or
installation of plant and machinery are in the nature of
contracts for work and labour, income-tax will have to
be deducted from payments made in respect of such
contracts. Similarly, contracts granted for processing of
goods supplied by the Government or any other
specified person, where the ownership of such goods
remains at all times with the Government or such
person, will also fall within the purview of this section.
The same position will obtain in respect of contracts for
fabrication of any article or thing where materials are
supplied by the Government or any other specified
person and the fabrication work is done by a contractor.

(b) Where, however, the contractor undertakes to supply

any article or thing fabricated according to the
specifications given by the Government or any other
specified person and the property in such article or thing
passes to the Government or such person only after such
article or thing is delivered, the contract will be a
contract for sale and as such outside the purview of this
section.

(c) In State of Himachal Pradesh v. Associated Hotels of

India Ltd. [1972] 29 STC 474, the Supreme Court
observed that where the principal objective of work
undertaken by the payee of the price is not the transfer
of a chattel qua chattel, contract is of work and labour.
The test is whether or not the work and labour bestowed
end in anything that can properly become the subject of
sale ; neither the ownership of the materials nor the
value of skill and labour as compared with the value of
the materials is conclusive although such matters may
be taken into consideration in determining, in the
circumstances of a particular case, whether the contract
is, in substance, one of work and labour or one for the
sale of a chattel. A building contract or a contract under
which a movable is fixed to another chattel or on the
land, where the intention plainly is not to sell, the article
but to improve the land or the chattel and the
consideration is not for the transfer of the chattel, but
for the labour and work done and the material
furnished, the contract will be one of work and labour.
In case of doubt, whether a particular contract is a
contract for work and labour or for sale, the matter
should be decided in the light of the principles laid down
by the Supreme Court in the above mentioned case.

(vii) The provisions of this section would apply in

relation to payments made to persons who arrange
advertisement, broadcasting, telecasting, etc.

(viii) The provisions are wide enough to cover not only

written contracts but also oral contracts.

(ix) Where the total payment under the contract is likely

to exceed Rs. 10,000 for the entire period during which
the contract will remain in force, income-tax will have to
be deducted at source. In a case where, at the time when
the contract was entered into, it was expected that the
total payment thereunder would not exceed Rs. 10,000
but later on it is found that the payment exceeds that
amount, deduction should be made in respect of earlier
payments as well.

(x) The percentage deduction prescribed in law is with

reference to the amount of payment and not ” income
comprised in the payment “. The person responsible for
making payment, therefore, is not required to estimate
the income comprised in the payment.

(xi) In a case where advance payments are made during

the execution of a contract and such payments are to be
adjusted at the time of final settlement of accounts, tax
will have to be deducted at the time of making advance
payments if the total payment is likely to exceed Rs.
10,000.

(xii) Where any contractor is the recipient of any amount

under a contract but the income of the recipient is not
subject to income-tax, such contractor may obtain a
certificate from his Assessing Officer under section
194C(4) for receiving payment without deduction of tax
at source.

(xiii) Every contractor, other than an individual or a

HUF, who is responsible for paying any sum to any sub-
contractor (who is resident in India), in pursuance of a
contract with such sub-contractor for carrying out or for
the supply of labour for carrying out, wholly or in part,
of the work undertaken by the contractor or for
supplying whether wholly or partly any labour which the
contractor had undertaken to supply, will be required to
deduct income-tax at the rate of 1 per cent. of such sum.

8. It may be noted that–

(i) The term ” service contracts ” would include services
rendered by such persons as lawyers, physicians,
surgeons, engineers, accountants, architects,
consultants, etc. However, services rendered for which
payment is in the nature of salaries which is chargeable
under the head of income ” A. Salaries ” in Chapter IV of
the Income-tax Act, 1961, shall not be covered by section
194C.

(ii) The term ” transport contracts ” would, in addition to

contracts for transportation and loading/unloading of
goods, also cover contracts for plying of buses, ferries,
etc., along with staff (e.g., driver, conductor, cleaner,
etc.). Reference in this regard is also invited to Board’s
Circular No. 558, dated 28th March, 1990.

(iii) The term ” materials contracts ” in the context of

section 194C would mean contracts for supply of
materials where the principal contract is for work and
labour and not a contract for sale of materials.

9. Board’s Circular No. 86, dated 29th May, 1972, and

No. 93, dated 26th September, 1972, and para 11 of
Circular No. 108, dated 20th March, 1973, are hereby
withdrawn. Board’s Circular No. 558, dated 28th March,
1990, is reiterated.

10. It is clarified that this circular explaining the

provisions of section 194C will apply with effect from 1st
April, 1994. Tax deductions made in accordance with
Circulars Nos. 86, 93 and 108 up to 31st March, 1994,
will be regarded as compliance of the provisions of
section 194C.

11. Copies of this circular will be available with the

Directorate of Income-tax (RSP & PR), 6th Floor, Mayur
Bhavan, New Delhi-110 001.

12. Hindi version will follow.

Sd./-
Rajesh Chandra.
Under Secretary,
Central Board of Direct Taxes
[F.No.275/54/93-IT (B), dated 8.3.94 from CBDT]

Circular No. 720 dated 30-8-95

1120. Payment of any sum shall be liable for
deduction of tax only under one section

It has been brought to the notice of the Board that in

some cases persons responsible for deducting tax at
source are deducting such tax by applying more than
one provision for the same payment. In particular, it has
been pointed out that the sums paid for carrying out
work of advertising are being subjected to deduction of
tax at source under section 194C as payment for work
contract as also under section 194J as payments of fees
for professional services.

2. It is hereby clarified that each section, regarding TDS

under Chapter XVII, deals with a particular kind of
payment to the exclusion of all other sections is this
Chapter. Thus, payment of any sum shall be liable for
deduction of tax only under one section. Therefore, a
payment is liable for tax deduction only under one
section.

Circular : No. 720, dated 30-8-1995.

Circular : No. 726, dated 18-10-1995.

Circular No. 13/2006 dated 13-12-06

 Section 194C of the Income-tax Act, 1961 -
Deduction of tax at source - Payments to
contractors and sub-contractors - Applicability
of TDS provisions of section 194C on Contract
for Fabrication of Article or Thing as per
Specifications given by the Assessee -
Contradiction between two Circulars of CBDT -
Resolution thereof

CIRCULAR NO. 13/2006, DATED 13-12-2006

1. Representations have been received in the Board

seeking clarification on the applicability of section
194C on such transactions, where the assessee has
outsourced certain work relating to fabrication or
manufacturing of article or thing in accordance with
the specifications given by the assessee. Circular No.
681, dated 8-3-1994 of the Board clarifies in para
7(vi) that the provisions of section 194C would not
apply to contracts for sale of goods and further
clarifies that where the property in the article or
thing so fabricated passes from the fabricator-
contractor to the assessee only after such article or
thing is delivered to the assessee, such contract
would be a contract for sale and so outside the
purview of section 194C. However, in reply to
 question No. 15 in Circular No. 715, dated 8-8-1995
on the subject of applicability of section 194C, in
respect of contract for supply printed material as
per prescribed specifications, it has been said that
such contracts would also be covered under section
194C. It has been represented that the views
expressed in these two circulars, to the extent as
pointed out above, are in contradiction to each
other.
2. The matter has been examined by the Board and it
is considered that exclusive reliance on
Question/Answer No. 15 of Circular No. 715,
without taking into account the principles laid down
in Circular No. 681 is not justified. Before taking a
decision on the applicability of TDS under section
194C on a contract, it would have to be examined
whether the contract in question is a ‘contract for
work’ or a ‘contract for sale’ and TDS shall be
applicable only where it is a ‘contract for work’.
3. It is, therefore, clarified that the provisions of
section 194C would apply in respect of a contract
for supply of any article or thing as per prescribed
specifications only if it is a contract for work and
not a contract for sale as per the principles in this
regard laid down in para 7(vi) of Circular No. 681,
dated 8-3-1994.

Circular No. 4/2008, Dated 28-4-2008

Clarification on deduction of tax at source (TDS)
on service tax component on rental income
under section 194-I of the Income-tax Act

CIRCULAR NO. 4/2008, DATED 28-4-2008

Representations/letters have been received in the Board

seeking clarification as to whether TDS provisions under
section 194-I of the Income-tax Act will be applicable on
the gross rental amount payable (inclusive of service tax)
or net rental amount payable (exclusive of service tax).

2. The matter has been examined by the Board. As per

the provisions of 194-I, tax is deductible at source on
income by way rent paid to any resident. Further rent
has been defined in 194-I as

3. Service tax paid by the tenant doesn’t partake the

nature of "income" of the landlord. The landlord only
acts as a collecting agency for Government for collection
of service tax. Therefore it has been decided that tax
deduction at source (TDS) under sections 194-I of
Income-tax Act would be required to be made on the
amount of rent paid/payable without including the
service tax.
4. These instructions may be brought to the notice of all
officers working in your region for strict compliance.

5. These instructions should also be brought to the

notice of the officers responsible for conducting internal
audit and adherence to these should be checked by the
auditing parties.

[F.No.275/73/2007-IT(B)]

Circular No. 23/2017 dated 19-07-2017

CIRCULAR No. 23 /2017

F. No. 275/59/2012-IT(B)
 Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes

North Block, New Delhi

19th July, 2017

Subject: Modification of Circular No. 1 of 2014 in

view of substitution of Service Tax by Goods and
Services Tax (GST).

The Central Board of Direct Taxes (the Board) had

earlier issued Circular No. 1/2014 dated 13.01.2014
clarifying that wherever in terms of the agreement or
contract between the payer and the payee, the Service
Tax component comprised in the amount payable to a
resident is indicated separately, tax shall be deducted at
source under Chapter XVII-B of the Income-tax Act,
1961 (the Act) on the amount paid or payable without
including such Service Tax component.
2. References have been received in the Board seeking
clarification as to what treatment would be required to
be given to the component of Goods and Services Tax
(GST) on services, which has been introduced by the
Government with effect from 1st of July, 2017 and into
which the erstwhile Service Tax has been subsumed.

3. The matter has been examined. It is noted that the

Government has brought in force a new Goods and
Services Tax regime with effect from 01.07.2017
replacing, amongst others, the Service Tax which was
being charged prior to this date as per the provisions of
Finance Act, 1994. Therefore, there is a need to
harmonize the contents of Circular No. 1/2014 of the
Board with the new system for taxation of services under
the GST regime.

4. In the light of the fact that even under the new GST
regime, the rationale of excluding the tax component
from the purview of TDS remains valid, the Board
hereby clarifies that wherever in terms of the agreement
or contract between the payer and the payee, the
component of 'GST on services' comprised in the
amount payable to a resident is indicated separately, tax
shall be deducted at source under Chapter XVII-B of the
Act on the amount paid or payable without including
such 'GST on services' component. GST for these
purposes shall include Integrated Goods and Services
Tax, Central Goods and Services Tax, State Goods and
Services Tax and Union Territory Goods and Services
Tax.

5. For the purposes of this Circular, any reference to

'service tax' in an existing agreement or contract which
was entered prior to 01.07.2017 shall be treated as 'GST
on services' with respect to the period from 01.07.2017
onward till the expiry of such agreement or contract.

6. Hindi version shall follow.

(Sandeep Singh)
Under Secretary to the Government of India
Tele: 23094182

Email: Sandeep.singh68@nic.in

Circular No. 5 of 2002 dated 30/07/2002

1126. Clarifications on various provisions
relating to tax deduction at source regarding
changes introduced through Finance Act, 1995

The Finance Act, 1995, has enlarged the scope of

income-tax deduction at source by making various
amendments. In regard to the changes introduced
through the Finance Act, 1995, a number of queries have
been received from the various associations and
professional bodies on the scope of tax deduction at
source. It would be desirable to clarify the doubts by
issuing a public circular in the form of question answers
as under :
Question 1 : What would be the scope of an advertising
contract for the purpose of section 194C of the Act?
Answer : The term ‘advertising’ has not been defined in
the Act. During the course of the consideration of the
Finance Bill, 1995, the Finance Minister clarified on the
Floor of the House that the amended provisions of tax
deduction at source would apply when a client makes
payment to an advertising agency and not when
advertising agency makes payment to the media, which
includes both print and electronic media. The deduction
is required to be made at the rate of 1 per cent. It was
further clarified that when an advertising agency makes
payments to their models, artists, photographers, etc.,
the tax shall be deducted at the rate of 5 per cent as
applicable to fees for professional and technical services
under section 194J of the Act.
Question 2 : Whether the advertising agency would
deduct tax at source out of payments made to the media
?
Answer : No. The position has been clarified in the
answer to question No. 1 above.
Question 3 : At what rate is tax to be deducted if the
advertising agencies give a consolidated bill including
charges for art work and other related jobs as well as
payments made by them to media ?
Answer : The deduction will have to be made under
section 194C at the rate of 1 per cent. The advertising
agencies shall have to deduct tax at source at the rate of
5 per cent under section 194J while making payments to
artists, actors, models, etc. If payments are made for
production of programmes for the purpose of
broadcasting and telecasting, these payments will be
subjected to TDS @ 2 per cent. Even if the production of
such programmes is for the purpose of preparing
advertisement material, not for immediate advertising,
the payment will be subject to TDS at the rate of 2 per
cent.
Question 4 : Where the tax is required to be deducted at
source on payments made directly to the print
media/Doordarshan for release of advertisements ?
Answer : The payments made directly to print and
electronic media would be covered under section 194C
as these are in the nature of payments for purposes of
advertising. Deduction will have to be made at the rate
of 1 per cent. It may, however, be clarified that the
payments made directly to Doordarshan may not be
subjected to TDS as Doordarshan, being a Government
agency, is not liable to income-tax.
Question 5 : Whether a contract for putting up a
hoarding would be covered under section 194C or 194-I
of the Act ?
Answer : The contract for putting up a hoarding is in
the nature of advertising contract and provisions of
section 194C would be applicable. It may, however, be
clarified that if a person has taken a particular space on
rent and thereafter sub lets the same fully or in part for
putting up a hoarding, he would be liable to TDS under
section 194-I and not under section 194C of the Act.
Question 6 : Whether payment under a contract for
carriage of goods or passengers by any mode of
transport would include payment made to a travel agent
for purchase of a ticket or payment made to a clearing
and forwarding agent for carriage of goods ?
Answer : The payments made to a travel agent or an
airline for purchase of a ticket for travel would not be
subjected to tax deduction at source as the privity of the
contract is between the individual passenger and the
airline/travel agent, notwithstanding the fact that the
payment is made by an entity mentioned in section
194C(1). The provision of section 194C shall, however,
apply when a plane or a bus or any other mode of
transport is chartered by one of the entities mentioned
in section 194C of the Act. As regards payments made to
clearing and forwarding agent for carriage of goods, the
same shall be subjected to tax deduction at source under
section 194C of the Act.
Question 7 : Whether a travel agent/clearing and
forwarding agent would be required to deduct tax at
source from the sum payable by the agent to an airline
or other carrier of goods or passengers ?
Answer : The travel agent, issuing tickets on behalf of
the airlines for travel of individual passengers, would
not be required to deduct tax at source as he acts on
behalf of the airlines. The position of clearing and
forwarding agents is different. They act as independent
contractors. Any payment made to them would, hence,
be liable for deduction of tax at source. They would also
be liable to deduct tax at source while making payments
to a carrier of goods.
Question 8 : Whether section 194C would be attracted in
respect of payments made to couriers for carrying
documents, letters, etc. ?
Answer : The carriage of documents, letters, etc., is in
the nature of carriage of goods and, therefore, provisions
of section 194C would be attracted in respect of
payments made to the couriers.
Question 9 : In case of payments to transporters, can
each GR be said to be a separate contract, even though
payments for several GRs are made under one bill ?
Answer : Normally, each GR can be said to be a separate
contract, if the goods are transported at one time. But if
the goods are transported continuously in pursuance of
a contract for a specific period or quantity, each GR will
not be a separate contract and all GRs relating to that
period or quantity will be aggregated for the purpose of
the TDS.
Question 10 : Whether there is any obligation to deduct
tax at source out of payment of freight when the goods
are received on "freight to pay" basis ?
Answer: Yes. The provisions of tax deduction at source
are applicable irrespective of the actual payment.
Question 11 : Whether a contract for catering would
include serving food in a restaurant/sale of eatables?
Answer : TDS is not required to be made when payment
is made for serving food in a restaurant in the normal
course of running of the restaurant/cafe.
Question 12 : Whether payment to a recruitment agency
can be covered by section 194C ?
Answer : Provisions of section 194C apply to a contract
for carrying out any work including supply of labour for
carrying out any work. Payments to recruitment
agencies are in the nature of payments for services
rendered. Accordingly, provisions of section 194C shall
not apply. The payment will, however, be subject to TDS
under section 194J of the Act.
Question 13 : Whether section 194C would cover
payments made by a company to a share registrar ?
Answer : In view of answer to the earlier question, such
payments will not be liable for tax deduction at source
under section 194C. But these will be liable to tax
deduction at source under section 194J.
Question 14 : Whether FD commission and brokerage
can be covered under section 194C ?
Answer : No
1 Question 15 : Whether section 194C would apply in
respect of supply of printed material as per prescribed
specifications ?
Answer : Yes.
Question 16 : Whether tax is required to be deducted at
source under section 194C or 194J on payment of
commission to external parties for procuring orders for
the company’s product ?
Answer : Rendering of services for procurement of
orders is not covered under the provisions of section
194C. However, rendering of such services may involve
payment of fees for professional or technical services, in
which case tax may be deductible under the provisions
of section 194J.
Question 17 : Whether advertisement contracts are
covered under section 194C only to the extent of
payment of commission to the person who arranges
release of advertisement, etc., or whether deduction is to
be made on the gross amount including bill of media ?
Answer : Tax is to be deducted at the rate of 1 per cent of
the gross amount of the bill.
Question 18 : Whether deduction of tax is required to be
made under section 194C for sponsorship of debates,
seminars and other functions held in colleges, schools
and associations with a view to earn publicity through
display of banners, etc., put up by the organisers ?
Answer : The agreement of sponsorship is, in essence,
an agreement for carrying out a work of advertisement.
Therefore, provisions of section 194C shall apply.
Question 19 : Whether deduction of tax is required to be
made on payments for cost of advertisement issued in
the souvenirs brought out by various organisations ?
Answer : Yes.
Question 20 : Whether payments made to a hotel for
rooms hired during the year would be of the nature of
rent ?
Answer : Payments made by persons, other individuals
and HUFs for hotel accommodation taken on regular
basis will be in the nature of rent subject to TDS under
section 194-I.
Question 21 : Whether the limit of Rs. 1,20,000 per
annum would apply separately for each co-owner of a
property ?
Answer : Under section 194-I, the tax is deductible from
payment by way of rent, if such payment of the payee
during the year is likely to be Rs. 1,20,000 or more. If
there are a number of payees, each having definite and
ascertainable share in the property, the limit of Rs.
1,20,000 will apply to each of the payee/co-owner
separately. The payers and payees are, however, advised
not to enter into sham agreements to avoid TDS
provisions.
Question 22 : Whether the rent paid should be enhanced
for notional income in respect of deposit given to the
landlord ?
Answer : The tax is to be deducted from actual payment
and there is no need of computing notional income in
respect of a deposit given to the landlord. If the deposit
is adjustable against future rent, the deposit is in the
nature of advance rent subject to TDS.
Question 23 : Whether payments made by company
taking premises on rent but styling the agreement as a
business centre agreement would attract the provisions
of section 194-I ?
Answer : The tax is to be deducted from rent paid, by
whatever name called, for hire of a property. The
incidence of deduction of tax at source does not depend
upon the nomenclature, but on the content of the
agreement as mentioned in clause (i) of Explanation to
section 194-I.
Question 24 : Whether in a case of a composite
arrangement for user of premises and provision of
manpower for which consideration is paid as a specified
percentage of turnover, section 194-I of the Act would be
attracted ?
Answer : If the composite arrangement is in essence the
agreement for taking premises on rent, the tax will be
deducted under section 194-I from payments thereof.
Question 25 : Whether the receipts prior to 1-7-1995 are
to be aggregated to determine limit of Rs. 20,000 for
each financial year ?
Answer : Clause (B ) of proviso to section 194J(1) makes
it clear that tax shall be deducted at source if the
aggregate sums credited or paid or likely to be credited
or paid during the financial year are likely to exceed Rs.
20,000. Therefore, in regard to financial year 1995-96,
the limit of Rs. 20,000 will have to be worked out taking
into account all the payments from 1-4-1995 to 31-3-
1996. But the deduction of tax at source would be made
at the specified rate only from the payment made on or
after 1-7-1995.
Question 26 : Whether payments made to a hospital for
rendering medical services will attract deduction of tax
at source under section 194J ?
Answer : Yes.
Question 27 : Whether commission received by the
advertising agency from the media would require
deduction of tax at source under section 194J of the Act
?
Answer : Yes.
Question 28 : Whether the services of a regular
electrician on contract basis will fall in the ambit of
technical services to attract the provisions of section
194J of the Act? In case the services of the electrician are
provided by a contractor, whether the provisions of
section 194C or 194J would be applicable ?
Answer : The payments made to an electrician or to a
contractor who provides the service of an electrician will
be in the nature of payment made in pursuance of a
contract for carrying out any work. Accordingly,
provisions of section 194C will apply in such cases.
Question 29 : Whether a maintenance contract including
supply of spares would be covered under section 194C or
194J of the Act ?
Answer : Routine, normal maintenance contracts which
includes supply of spares will be covered under section
194C. However, where technical services are rendered,
the provision of section 194J will apply in regard to tax
deduction at source.
Question 30 : Whether the deduction of tax at source
under sections 194C and 194J has to be made out of the
gross amount of the bill including reimbursements or
excluding reimbursement for actual expenses ?
Answer : Sections 194C and 194J refer to any sum paid.
Obviously, reimbursements cannot be deducted out of
the bill amount for the purpose of tax deduction at
source.
Question 31 : Whether TDS from income in respect of
units is applicable to dividend or is it applicable to
capital appreciation distributed at the time of
repurchase/redemption of the units ?
Answer : The provisions of section 194K regarding
deduction of tax at source from income in respect of
units are applicable to periodical distribution of income,
which is in the nature of dividend. These provisions do
not apply to capital gains arising at the time of
repurchase or redemption of the units.
Question 32 : Whether TDS on reinvestment term
deposit should be made on accrual basis, which is
quarterly, or once in a financial year ?
Answer : Tax has to be deducted at source at the time of
credit of interest to the account of the payee or at the
time of payment thereof, whichever is earlier. If credit is
given to the account of the payee or payment is made to
him annually, the tax may be deducted annually. It may
be clarified that a credit to interest payable account or
suspense account, etc., is also taken as credit to the
account of the payee, even though this credit is not
reflected separately in the payee’s account.
Question 33 : Whether variable deposit schemes are
liable to deduction of tax at source from interest ?
Answer : Under section 194A, tax is to be deducted from
interest from banks on time deposits. As variable
deposits are in the nature of time deposits, tax is
deductible at source from interest on such deposits.
Question 34 : Whether tax has to be deducted from
principal on renewal of deposits made after 1-7-1995 but
which matured on or before 30-6-1995 when the
renewal is made retrospectively?
Answer : Tax has to be deducted from interest credited
or paid, whichever is earlier, on time deposits with a
bank made on or after 1-7-1995. When a time deposit is
renewed retrospectively, the relevant date for deciding
the applicability of section 194A would be that date of
renewal. Thus, if the time deposit is renewed after 1-7-
1995, the tax deduction at source will have to be made
from interest paid or credited in respect of such a time
deposit.
Circular : No. 715, dated 8-8-1995.
Clarification regarding question No. 20
1. Circular No. 715 dated 8-8-1995 has been issued by
the Central Board of Direct Taxes to clarify various
provisions relating to tax deduction at source under
various provisions of the Income-tax Act. Question No.
20 of the aforesaid Circular related to applicability of the
provisions of section 194-I of the Income-tax Act in
respect of payments made to a hotel for rooms. The
relevant question and answer is reproduced below :—
". . . Q. No. 20 : Whether payments made to a hotel for
rooms hired during the year would be of the nature of
rent?
Ans. : Payments made by persons other than individuals
and HUF for hotel accommodation taken on regular
basis will be in the nature of rent subject to TDS under
section 194-I." [Emphasis supplied]
In this context, doubts have been raised as to what
constitutes "hotel accommodation taken on regular
basis" for the purpose.
2. The Board have considered the matter. First, it needs
to be emphasised that the provisions of section 194-I do
not normally cover any payment for rent made by an
individual or HUF except in cases where the total sales,
gross receipts or turnover from business and profession
carried on by the individual or HUF exceed the
monetary limits specified under clause (a) or clause (b)
of section 44AB. Where an employee or an individual
representing a company (like a consultant, auditor,
etc.) makes a payment for hotel accommodation directly
to the hotel as and when he stays there, the question of
tax deduction at source would not normally arise
(except where he is covered under section 44AB as
mentioned above) since it is the employee or such
individual who makes the payment and the company
merely reimburses the expenditure.
Furthermore, for purposes of section 194-I, the meaning
of ‘rent’ has also been considered. "‘Rent’ means any
payment, by whatever name called, under any lease . . .
or any other agreement or arrangement for the use of
any land. . . ." [Emphasis supplied]. The meaning of
‘rent’ in section 194-I is wide in its ambit and scope. For
this reason, payment made to hotels for hotel
accommodation, whether in the nature of lease or
licence agreements are covered, so long as such
accommodation has been taken on ‘regular basis’. Where
earmarked rooms are let out for a specified rate and
specified period, they would be construed to be
accommodation made available on ‘regular basis’.
Similar would be the case, where a room or set of rooms
are not earmarked, but the hotel has a legal obligation to
provide such types of rooms during the currency of the
agreement.
3. However, often, there are instances, where corporate
employers, tour operators and travel agents enter into
agreements with hotels with a view to merely fix the
room tariffs of hotel rooms for their
executives/guests/customers. Such agreements, usually
entered into for lower tariff rates, are in the nature of
rate-contract agreements. A rate-contract, therefore,
may be said to be a contract for providing specified types
of hotel rooms at pre-determined rates during an agreed
period. Where an agreement is merely in the nature of a
rate contract, it cannot be said to be accommodation
‘taken on regular basis’, as there is no obligation on the
part of the hotel to provide a room or specified set of
rooms. The occupancy in such cases would be occasional
or casual. In other words, a rate-contract is different for
this reason from other agreements, where rooms are
taken on regular basis. Consequently, the provisions of
section 194-I while applying to hotel accommodation
taken on regular basis would not apply to rate contract
agreements.
Circular : No. 5/2002, dated 30-7-2002.

Circular No. 9 of 2012 dated 17/10/2012

SECTION 194C OF THE INCOME-TAX ACT, 1961
- DEDUCTION OF TAX AT SOURCE -
PAYMENTS TO CONTRACTORS & SUB-
CONTRACTORS - DEDUCTION OF TAX AT
SOURCE ON PAYMENT OF GAS
TRANSPORTATION CHARGES BY THE
PURCHASER OF NATURAL GAS TO THE
SELLER OF GAS
Circular No. 3 of 2011 dated 13/05/2011
CIRCULAR NO. 03 /2011

F. No 275/34/2011-( IT-B)

Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes

New Delhi, dated the 13th May, 2011

Subject: Issuance of TDS Certificates in Form No. 16A

downloaded from TIN Website and option to authenticate the
same by way of digital signature – Circular under section 119
of the Income-tax Act 1961.

Section 203 of the Income-tax Act 1961 (‘the Act’) read with the Rule 31
of the Income-tax Rules 1962 (‘the IT Rules’) provides for furnishing of
certificate of tax deduction at source (TDS) by the deductor to the
deductee specifying therein the prescribed particulars like amount of
TDS, permanent account number (PAN), tax deduction and collection
account number (TAN), etc. The relevant form for such TDS certificate is
Form No.16 in case of deduction under section 192 and Form No.16A for
deduction under any other provisions of Chapter XVII-B of the Act. TDS
certificate in Form No.16 is to be issued annually whereas TDS certificate
in Form No.16A is to be issued quarterly.
2. Currently, a deductor has an option to authenticate TDS certificate in
Form No.16 by using a digital signature. However, no such option of
using a digital signature is available to a deductor for issuing TDS
certificate in Form No.16A and it, therefore, needs to be authenticated by
a manual signature. The Central Board of Direct Taxes (the Board) has
received representations to allow the option of using digital signature for
authentication of TDS certificate in Form No.16A as issuance of TDS
certificate in Form No.16A by manual signature is very time consuming,
specially for deductors who are required to issue a large number of TDS
certificates.

3. The Department has already enabled the online viewing of Form

No.26AS by deductees which contains TDS details of the deductee based
on the TDS statement (e-TDS statement)filed electronically by the
deductor. Ideally, there should not be any mismatch between the figures
reported in TDS certificate in Form No. 16A issued by the deductor and
figures contained in Form No.26AS which has been generated on the
basis of e-TDS statement filed by the deductor. However, it has been
found that in some cases the figures contained in Form No.26AS are
different from the figures reported in Form No.16A. The gaps in Form
No.26AS and TDS certificate in Form No. 16A arise mainly on account of
wrong data entry by the deductor or non-filing of e-TDS statement by the
deductor. As at present, the activity of issuance of Form No.16A is
distinct and independent of filing of e-TDS statement, the chances of
mismatch between TDS certificate in Form No.16A and Form No.26AS
cannot be completely ruled out. To overcome the challenge of mismatch
a common link has now been created between the TDS certificate in
Form No.16A and Form No.26AS through a facility in the Tax
Information Network website (TIN Website) which will enable a
deductor to download TDS certificate in Form No.16A from the TIN
Website based on the figures reported in e-TDS statement filed by him.
As both Form No.16A and Form No.26AS will be generated on the basis
of figures reported by the deductor in the e-TDS statement filed, the
likelihood of mismatch between Form No.16A and Form No.26AS will be
completely eliminated.
4. In view of the above, for proper administration of the Act, the Board
have, in exercise of powers under section 119 of the Act, decided the
following :-

4.1 ISSUE OF TDS CERTIFICATE IN FORM NO. 16A

(i) For deduction of tax at source made on or after 01/04/2011:

(a) The deductor, being a company including a banking company to

which the Banking Regulation Act,1949 applies and any bank or banking
institution, referred to in section 51 of that Act or a co-operative society
engaged in carrying the the business of banking, shall issue TDS
certificate in Form No.16A generated through TIN central system and
which is downloaded from the TIN Website with a unique TDS certificate
number in respect of all sums deducted on or after the 1st day of April,
2011 under any of the provisions of Chapter-XVII-B other than section
192.

(b) The deductor, being a person other than the person referred to in
item (a) above, may, at his option, issue TDS Certificate in Form No.16A
generated through TIN central system and which is downloaded from
the TIN Website with a unique TDS certificate number in respect of all
sums deducted on or after the 1st day of April, 2011 under any provisions
of Chapter-XVII-B other than section 192.

(ii) For deduction of tax at source made during financial year

2010-11:

The deductor, may, at his option, issue the TDS certificate in Form
No.16A generated through TIN central system which is downloaded from
the TIN Website with a unique TDS certificate number in respect of all
sums deducted during the financial year 2010-11 under any of the
provisions of Chapter-XVII-B other than section 192.
4.2 AUTHENTICATION OF TDS CERTIFICATE IN FORM
NO.16A

(i) The deductor, issuing the TDS certificate in Form No.16A by

downloading from the TIN Website shall authenticate such TDS
certificate by either using digital signature or manual signature

(ii) The deductor being a person other than a person referred to in item
4.1(i)(a) above and who do not issue the TDS Certificate in Form No.16A
by downloading from the TIN Website shall continue to authenticate
TDS certificate in From No.16A by manual signature only.

5. The Director General of Income-tax (Systems) shall specify the

procedure, formats and standards for the purpose of issuance of TDS
certificate in Form No.16A which is downloaded from the TIN Website
and shall be responsible for the day-to-day administration in relation to
the procedure, formats and standards for issuance of TDS certificate in
Form No.16A in electronic form.

6. It is further clarified that TDS certificate issued in Form No. 16A by

the deductors covered by para 4.1(1)(a) in accordance with this circular
and procedure, format and standards specified by the Director General
of Income-tax (Systems) shall only be treated as a vilid TDS certificate in
Form No. 16A for the purpose of section 203 of the Act read with Rule 31
of the IT Rules,1962.

7. Hindi version shall follow.

-sd/-
 (AJAY KUMAR)
Director (Budget)
Tel.No.2309-2641

Circular No. 4 of 2013 dated 17/04/2013

CIRCULAR NO. 04/2013

F.No 275/34/2011-IT(B)
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes

New Delhi, the 17th April, 2013

Sub: Issuance of certificate for tax deducted at source in Form

No. 16 in accordance with the provisions of section 203 of the
Income-tax Act, 1961 read with the Rule 31 of the Income-tax
Rules 1962 -- regarding

1. Section 203 of the Income-tax Act 1961 (“the Act”) read with the Rule
31 of the Income-tax Rules 1962 (“the Rules”) stipulates furnishing of
certificate of tax deduction at source (TDS) by the deductor to the
deductee specifying therein the prescribed particulars such as amount of
TDS, valid permanent account number (PAN) of the deductee, tax
deduction and collection account number (TAN) of the deductor, etc.
The relevant form for such TDS certificate is Form No. 16 in case of
deduction under section 192 and Form No. 16A for deduction under any
other provision of Chapter XVII-B of the Act. TDS certificate in
Form No. 16 is to be issued annually whereas TDS certificate in
Form No. 16A is to be issued quarterly. TDS Certificate in
Form No 16 as notified vide Notification No. 11/2013 dated
19.02.2013 has two parts viz Part A and Part B (Annexure).
Part A contains details of tax deduction and deposit and Part B
(Annexure) contains details of income.

2. With a view to streamline the TDS procedures, including proper

administration of the Act, the Board had issued Circular No. 03/2011
dated 13.05.2011 and Circular No. 01/2012 dated 09.04.2012 making it
mandatory for all deductors to issue TDS certificate in Form No. 16A
after generating and downloading the same from “TDS Reconciliation
Analysis and Correction Enabling System” or
(https://www.tdscpc.gov.in) (hereinafter called TRACES Portal)
previously called TIN website. In exercise of powers under section 119 of
the Act, the Board has now decided as following:-

2.1 ISSUE OF PART A OF FORM NO. 16 FOR DEDUCTION OF

TAX AT SOURCE MADE ON OR AFTER 01.04.2012:

All deductors (including Government deductors who deposit TDS in the

Central Government Account through book entry) shall issue the Part A
of Form No. 16, by generating and subsequently downloading through
TRACES Portal, in respect of all sums deducted on or after the 1st day of
April, 2012 under the provisions of section 192 of Chapter XVII-B. Part A
of Form No 16 shall have a unique TDS certificate number.

2.2 AUTHENTICATION OF TDS CERTIFICATE IN FORM NO.

16:

The deductor, issuing the Part A of Form No. 16 by

downloading it from the TRACES Portal, shall, before issuing
to the deductee authenticate the correctness of contents
mentioned therein and verify the same either by using manual
signature or by using digital signature in accordance with sub-
rule (6) of Rule 31.
2.3 In other words, Part A of Form No. 16 shall be issued by all the
deductors, only by generating it through TRACES Portal and after duly
authenticating and verifying it.

2.4 ‘Part B (Annexure)’ of Form No. 16 shall be prepared by the deductor

manually and issued to the deductee after due authentication and
verification alongwith the Part A of the Form No. 16 stated above.

2.5 Sub rule (3) of rule 31of the Rules sets the time limit for issuance of
Form 16 by the deductor to the employee. Currently, Form 16 should be
issued by 31st May of the financial Year immediately following the
financial year in which income was paid and tax deducted.

3.1 The Director General of Income-tax (Systems) shall specify the

procedure, formats and standards for the purpose of download of Part A
of Form No. 16 from the TRACES Portal and shall be responsible for the
day-to-day administration in relation to the procedure, formats and
standards for download of Part A of Form No. 16 in electronic form.

3.2 It is further clarified that Part A of Form No. 16 issued by the

deductors in accordance with this circular and as per the procedure,
formats and standards specified by the Director General of Income-tax
(Systems) and containing Unique Identification Number shall only be
treated as a valid compliance to the issue of Part A of Form No. 16 for the
purpose of section 203 of the Act read with rule 31 of the Rules.

4. Hindi version shall follow.

-sd-
(Anshu Prakash)
Director (Budget)
Central Board of Direct Taxes
Circular No. 2 of 2007 dated 21/05/2007

CIRCULAR NO. 02/2007

OPTION TO CERTIFY TDS CERTIFICATES BY WAY OF DIGITAL

SIGNATURES – CIRCULAR UNDER SECTION 119 OF THE INCOME-TAX
ACT, 1961.

The provisions of section 203 of the Income-tax Act, 1961 lay down that
every person responsible for deduction of tax at source shall furnish a
certificate of deduction of tax at source to the deductee specifying therein
the amount of the tax deducted and the rate at which the tax has been
deducted and other particulars prescribed under rule 31 of the Income-
tax Rules, 1962. The relevant Form for such certificate in respect of tax
deducted at source from income chargeable under the head "Salaries" is
Form No.16.

2. Representations have been received in Board to the effect that some

companies have a large number of employees and the issuance of
certificates of deduction of tax at source with manual signatures is
becoming very time consuming. The request, therefore, is that the
Department should allow the employers to use their digital signatures to
authenticate TDS certificates instead of signing the certificates
manually. As the field formations are aware, the requirement of
annexing TDS certificates with the return of income has been dispensed
with. The TDS certificates are now issued only for the purpose of
personal record of the deductees subject to the condition that they may
be required to produce the same on demand before the Assessing Officer
in terms of section 139C, inserted by the Finance Act, 2007. The TDS
claim made in the return of income is also required to be matched with
the e-TDS returns furnished by the deductors. Assessing Officers may, if
considered necessary, also write to the deductors for verification of the
correctness of the taxes deducted or other particulars mentioned in the
certificate.
3. Digital signatures are being used to authenticate most of the e-
commerce transactions on the internet. The transmission of information
using digital signatures is failsafe. The Central Board of Direct Taxes
have, therefore, in exercise of powers under section 119 of the Income-
tax Act, 1961, decided for the proper administration of this Act to allow
the deductors, at their option, in respect of the tax to be deducted at
source from income chargeable under the head "Salaries" to use their
digital signatures to authenticate the certificates of deduction of tax at
source in Form No.16. The deductors will have to ensure that TDS
certificates in Form No.16 bearing digital signatures have a control No.
with log to be maintained by the employer (deductor). The deductor will
ensure that its TAN and the PAN of the employee are correctly
mentioned in such Form No.16 issued with digital signatures. The
deductors will also ensure that once the certificates are digitally signed,
the contents of the certificates are not amenable to change by
anyone. The income-tax authorities shall treat such certificate with
digital signatures as a certificate issued in accordance with rule 31 of the
Income-tax Rules, 1962.