Under the existing provisions
of section 194C of the Act payment to contractors is subject to tax deduction
at source (TDS) at the rate of 1% in case the payee is an individual or Hindu
undivided family and at the rate of 2% in case of other payees if such payment
exceeds Rs. 30,000 or aggregate of such payment in a financial year exceeds Rs.
75,000. Prior to 1.10.2009, section 194C of the Act provided for exemption from
TDS to an individual transporter who did not own more than two goods carriage
at any time during the previous year. Subsequently, Finance (No.2) Act, 2009
substituted section 194C of the Act with effect from 1.10.2009, which inter
alia provided for non- deduction of tax from payments made to the contractor
during the course of plying, hiring and leasing goods carriage if the
contractor furnishes his Permanent Account Number (PAN) to the payer.
The memorandum explaining the provisions of Finance (No.2) Bill,
2009 indicates that the intention was to exempt only small transport operators
(as defined in section 44AE of the Act) from the purview of TDS on furnishing
of Permanent Account Number (PAN). Thus, the intention was to reduce the
compliance burden on the small transporters. However, the current language of
sub-section (6) of section 194C of the Act does not convey the desired
intention and as a result all transporters, irrespective of their size, are
claiming exemption from TDS under the existing provisions of sub-section (6) of
section 194C of the Act on furnishing of PAN.
As there is no rationale for exempting payment to all
transporters, irrespective of their size, from the purview of TDS, it is
proposed to amend the provisions of section 194C of the Act to expressly
provide that the relaxation under sub-section (6 ) of section 194C of the Act
from non-deduction of tax shall only be applicable to the payment in the nature
of transport charges (whether paid by a person engaged in the business of
transport or otherwise) made to an contractor who is engaged in the business of
transport i.e. plying, hiring or leasing goods carriage and who is eligible to
compute income as per the provisions of section 44AE of the Act (i.e a person
who is not owning more than 10 goods carriage at any time during the previous
year) and who has also furnished a declaration to this effect along with his
This amendment will take effect from 1st June, 2015.