Everything About TDS on AMC Charges

How does Section 194C define ‘annual maintenance’?

Annual maintenance refers to the periodic upkeep conducted on a yearly basis. Section 194C specifically includes regular, ordinary, and recurring services while excluding those that involve technical complexities.

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Applicability of TDS provisions on AMC Charges U/S 194C

In cases where a contract equivalent to an Annual Maintenance Contract (AMC) is established between a contractor and 'specified persons,' and the contractor receives payment for carrying out any 'work' for which the payer is obligated to pay AMC Charges based on the agreed contract, Tax Deducted at Source (TDS) is mandated on such payments according to the prescribed rate. It's important to note that even a contract between a sub-contractor and specified persons falls under the purview of TDS as per Section 194C of the Income Tax Act, 1961. Adherence to these regulations is crucial to ensure compliance and smooth operations.

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Who is the “specified person” for TDS on AMC Charges under Section 194C?

Section 194C defines “specified persons” as:

• The Central or State Governments
• Local Authorities
• Companies
• Cooperative Societies,
• Firms
• Trusts
• Any State authority accountable for providing housing lodging(s) or planning or development of cities, towns, etc.;
• Urban Development Authorities
• Societies
• Universities
• Foreign Governments or Entities
• Individuals, BOIs, AOPs, or HUFs with more than Rs. 1 crore (business) or Rs. 50 lakh (profession) sales, turnover, or gross receipts.

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TDS rate for AMC Charges under Section 194C

The applicable rates for Tax Deducted at Source (TDS) are as follows: As prescribed under Section 194C of the Act, the rate of TDS deduction by the deductor depends on whether the payment is being made to an Individual/HUF or to someone other than an Individual/HUF. For HUF or individuals, the rate stands at 1%, while for others, it is 2%. It’s important to note that these rates do not incorporate any surcharge or Higher Education Cess.

Furthermore, as per Section 206AA of the Act, if the payee fails to provide their PAN number, the deductor is obligated to deduct TDS at the rate of 20%.

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When to deduct TDS on annual maintenance charges under Section 194C

TDS becomes necessary when making payments to a contractor in two situations: Firstly, when the sum is credited to the payee's account. Secondly, when the payment is made to the payee, either in cash or through the issuance of a cheque, draft, or any other mode, whichever event occurs earlier.

Moreover, the person who is liable to pay the payee for Annual Maintenance Contract (AMC) charges has to deduct TDS from the payment. This rule applies even if the payment is not made directly to the payee, but credited to a Suspense Account or any other account in the books of the payer. This scenario is deemed to have the sum credited to the payee's account, thus necessitating the deduction of TDS.

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Threshold limit for AMC Charges under Section 194C

The threshold limit concerning the Tax Deducted at Source (TDS) deduction for payments made towards Annual Maintenance Contract (AMC) Charges is clearly defined. For a single transaction, the payment should not surpass Rs. 30,000. Furthermore, considering the entire financial year, the combined payments made should not exceed Rs. 1,00,000.

In the event that these limits are exceeded, the provisions under Section 194C of the Act will be invoked, leading to an applicable deduction rate of either 1% or 2%. It's imperative to ensure compliance with these regulations to avoid any unnecessary complications.

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Non-applicability of TDS under Section 194C of the Income Tax Act, 1961

For amounts not exceeding Rs. 30,000 in a single transaction, the obligation to deduct Tax Deducted at Source (TDS) does not apply.

Similarly, if the sum or the aggregate of sums credited or paid to the recipient throughout the fiscal year does not surpass Rs. 1,00,000, TDS deduction is also not required.

In cases where an individual or a Hindu Undivided Family (HUF) makes payments for personal purposes, they are not obligated to deduct TDS on such transactions.

Furthermore, payments to a Non-Resident contractor do not attract TDS U/S 194C of the Income Tax Act, 1961. Nevertheless, the provisions of Section 195 govern such transactions. Adherence to these guidelines ensures smooth and compliant financial transactions.

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