Society Administration

A Detailed Guide to TDS on Maintenance Charges

Published: October 18, 2024

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has affirmed the compulsory deduction of TDS on maintenance charges. As per Section 194C, when an individual processes a payment to the contractor for carrying out any work in pursuance of an agreement, it becomes a common maintenance charge. The extraction of TDS on such payment is mandatory to fool-proof compliance with legislation.

What are Maintenance Charges According to Section 194C?

Before diving into the estimation of TDS and its applicability, it is crucial to understand the maintenance expenses or charges. Maintenance charges refer to periodic upkeep conducted on a routine or one-time basis. When the payment is for maintenance work and does not include the use of premises or equipment, then it is termed as the maintenance charge.

Under the Clause IV of the Section 194C Explanation ‘work’ refers to:

Catering
Carrying passengers or goods by any transportation mode except for railways
Broadcasting and telecasting programs
Advertising
Manufacturing and supplying a product based on a customer’s specific requirements using materials purchased from that customer. If the materials have been purchased from someone else other than the customer then, it will not be considered under maintenance work.

Applicability of TDS on Maintenance Cost

Section 194C confirms the applicability of TDS on society maintenance charges under 2 circumstances. When under a contract, a payment is made between:

A specified individual and a contractor
A specified individual and a sub-contractor

for maintenance work as defined above.

Section 194C defines a contractor as a person who signs an agreement with the government, a corporation, a company, a local authority, or a cooperative society to do any type of work, including manpower supply.

Furthermore, the Section also refers to a sub-contractor as a person who agrees to perform work or provide labour to the contractor for the entire execution of a project or a part of it.

As per Section 194C, a specified person can be:

A firm
A company
Any local authority
A co-operative society
The Central Government
Any State Government
A society listed under the Society Registration Act, 1860
State authorities responsible for housing accommodation, urban planning and development
Government or non-resident corporate entity of foreign nations or states
An AOP, HUF, BOI or any individual who has total turnover, gross receipts or sales of over ₹1 Crore for businesses and ₹50 lakhs for other professions during the previous fiscal year
Any statutory corporation
An enterprise established under State, Central or Provisional Act
A university

Please note: AOP – Association of Persons, BOI – Body of Individuals, HUF – Hindu Undivided Family.

Maintenance TDS Rate Under Section 194C, Income Tax Act

Following is a tabulated illustration explaining the rate of TDS on maintenance charges:

Nature of Payment	TDS Rates with PAN	TDS Rates without PAN (Under Section 206AB)	TDS Rates (14.05.2020 – 31.03.2021)
Credited/paid HUF or resident individual	1%	20%	0.75%
Credited/paid to any other person	2%	20%	1.5%
Credited/paid to transporters	NIL	20%	NIL

Please note: TDS will be deducted on its basic rates only. Thus, zero Surcharge, SHEC and Education CESS will add to these rates.

Time of TDS Subtraction on Maintenance Charges

If the payment is made by or on behalf of the Government, the time limit for TDS deduction is the same day on which payment is processed.

If case the payment is on behalf of any other entity except the Government, TDS deduction will take place on:

On or before April 30th if the payment is made in March
For other months, within 7 days from the end of the month on which payment has been made.

The payable person can deduct TDS:

At the time of crediting the sum to the payee’s account
Payment is made in cash
When an amount is credited to an account, whether it is called a “Suspense account” or by any other name, in the books of the person who has to pay that amount, it’s considered as income being credited to the payee’s account. Thus, TDS will be debited if the amount is credited to the account or by any other mode, whichever happens earlier.

Please note: Failing to meet the deadline for TDS deposit under Section 194C could result in severe financial consequences. It may result in accruing interest, facing penalties, and encountering avoidable legal complications.

Deemed Application of TDS on Maintenance Charges

If the amount is credited to the Suspense Account or any other account in the books of the person who is responsible for paying the payee, it will be considered as a credit to the payee’s account. As a result, the provisions for deducting TDS on payments made for maintenance expenses will apply.

Conditions to Meet for TDS Deduction on Maintenance Costs

The Government must deduct TDS on maintenance payments, if:

If the contractor or subcontractor is a resident under Section 6 of the Income Tax Act, 1961.
The consideration amount of the agreement concerning which the payment is processed is ₹30,000 or more.

Threshold Limit for TDS Deduction Under Section 194C

The threshold limit for TDS deductions on maintenance costs is:

₹30,000 or more for a single payment.
₹100,000 or more for the aggregated value during the relevant financial year.

Please note: if a single payment is less than ₹30,000, but the total value reaches ₹100,00, TDS will be deducted.

Exemptions of Income Tax Deduction Under Section 194C

The following cases are the exemptions where zero TDS deduction will be made. Have a look:

Personal Purposes:

If an individual or HUF makes a payment for personal reasons, no TDS should be deducted from that payment.

Non-resident Contractor

Payment to a contractor who is not a resident will not be subject to TDS under section 194C of the Income Tax Act, 1961. Instead, it will be regulated by the provisions of Section 195.

Ten or Less Goods Carriages

When doing business that involves hiring, or leasing goods carriages, no TDS deductions can be made from any credited or paid sum. This rule applies if the contractor has 10 or fewer goods carriages at any time during the previous year. Also, if they provide their PAN and a declaration to the person making the payment or crediting the amount.

TDS on Maintenance Charges at a Lower Rate

As per Section 194C, if the assessing officer (AO) is assured that the overall income of the contractor or subcontractor is justified then they will be eligible for the income tax deduction at any lower rate or no deduction of income tax. Then, the AO can issue the relevant certificate upon request from the contractor or sub-contractor. Subsequently, the contractor or sub-contractor can provide the lower rate or nil TDS certificate.

Clarifications Made by the Central Bureau of Direct Taxes about TDS on Maintenance Costs

Circular No. 1/2012

All deductors must issue a TDS certificate in Form No. 16A by generating it through the TIN central system. They can download the certificate from the TIN website, which will have a unique TDS certificate number. These rules apply to all sums deducted on or after 1.04.2012. A digital signature or a manual signature can authenticate the issued certificate.

Circular No. 23/ 2017

TDS should be deducted from the invoice amount for maintenance charges, excluding the GST amount if it is listed separately on the invoice.

However, if the GST amount is not listed separately on the invoice, TDS should be deducted from the entire invoice amount.

Circular No. 715/1995

The routine and regular maintenance contracts, which also involve supplying spare parts, will fall under Section 194C.

Issuance of TDS Certificates

Issuance of TDS certificates in Form No.16A for payments other than salary is a must-do every quarter. According to rule 31, anyone responsible for deducting tax from non-salary payments must issue a Form No. 16A TDS certificate quarterly. The certificate issuance dates are:

Quarter	Due Date
April to June	15th August
July to September	15th November
October to December	15th February
January to March	15th June

Consequences for Non-compliance to TDS Under Section 194C

Failure to adhere to Section 194C may lead to outcomes like interest charges, fines, and legal action. Not deducting TDS within the specified timeframe may result in a 1% per month or part thereof interest charge and penalties ranging from Rs. 10,000 to Rs. 1 lakh.

Final Words

Hopefully, this comprehensive discussion about TDS on maintenance charges helps meet all your queries. Section 194C of the Income Tax Act deals with the deduction of TDS on the payment of maintenance charges. As a thumb rule, TDS must be deducted from maintenance charges when making a payment to a contractor as per a contract. Ensure to be aware of the norms and conditions related to TDS deductions for ultimate convenience and security.

Frequently Asked Questions

1. What are the rates of TDS for website maintenance charges?

The TDS rates for website maintenance charges under Section 194J, Income Tax Act range from 2% to 20%.

2. Does TDS apply to common area maintenance?

Yes, maintenance charges for common areas are liable to TDS deductions.

3. Which service is an exemption from TDS deductions?

Interstate supplies are an exemption from TDS deductions, as IGST applies to such services.

4. Does GST apply to repair and maintenance charges?

Yes. Repair and maintenance charges attract 18% of the GST rate.

5. How can I calculate TDS under Section 194C?

The calculation of TDS under Section 194C involves multiplying the payment to the contractor by the applicable TDS rate as per the nature of the work and the contractor’s status. The TDS amount must be rounded off to the nearest rupee.