TDS on Advance Payments to Contractors (Fixed Food & Accommodation Allowances

Code of Taxation
1

We’re an NGO (ARPO) with contractor staff on our “Documention project of indigenous arts” at Thekkady, funded by Samagatha Foundation. We provide advance payments to our contract staff covering: We have a policy for these advance payments for their official project duties. This advance covers:

  1. Fixed daily food allowance (INR 600).
  2. Fixed daily accommodation allowance (INR 1500).
  3. Actual travel/other costs (receipt-based).

For food/accommodation allowances, we do NOT require detailed individual receipts from the contractor staff. These are provided as lump-sum daily amounts.

Query: Is TDS applicable on these advance payments, especially the fixed daily allowances, under the Indian Income Tax Act (likely Section 194C)? Your insights on per diem TDS treatment are welcome.

2

Thanks for your query.

We understand that these resources are engaged through a contract. They are not staff (employees) but contractors. The engagement would be made through a contract and payment to such contractor would be covered within Section 194C of Income Tax Act. Since these are individuals, TDS @1% would be deducted if payment if a single invoice exceeds Rs.30,000 in a financial year or total payment in a financial year exceeds Rs.100,000. If these thresholds are not reached, need not deduct TDS but be careful if the threshold is reached, then for all earlier payments made during the financial year, TDS would be applicable and need to be deducted.

Hope it clarifies.

CS Sharad Bhargava