As the end of the financial year approaches, it is essential for contractors and businesses alike to ensure they are correctly complying with the tax laws. One crucial aspect of this is the TDS or tax deducted at source.
The TDS on contractors for FY 2020-21 has a limit of 2% for payments made to resident contractors and 5% for non-resident contractors. This means that businesses or individuals engaging the services of contractors must deduct the appropriate percentage of tax before paying the contractor.
It is vital to note that the TDS on contractors is not applicable if the contractor`s overall income does not exceed the taxable limit as defined by the Income Tax Act. In such cases, the contractor can provide a Form 15G or 15H, declaring that they are not liable to pay taxes as their income falls below the taxable limit.
Moreover, the TDS on contractors is not applicable if the payment to the contractor does not exceed Rs. 30,000 in a financial year. In such cases, the contractor is not liable to pay taxes, and the business or individual engaging their services need not deduct any TDS.
It is crucial for businesses and individuals to ensure they adhere to the TDS rules as failing to do so can result in substantial penalties. Moreover, it is essential to maintain proper records of TDS deductions and maintain compliance with the relevant laws and regulations.
In conclusion, TDS on contractors for FY 2020-21 has a limit of 2% for resident contractors and 5% for non-resident contractors. However, businesses and individuals must ensure they adhere to the relevant laws and regulations to avoid hefty penalties and maintain compliance. By maintaining proper records and complying with the regulations, contractors and businesses can have a hassle-free and legally compliant financial year.