Industrial Relations And Labour Laws
Assitant Manager-compliancel
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My company is engaged in the business of supply, erect and commission Fire Alarms and CCTV systems. We had undertaken a Work at a Public sector unit in the state of Uttar Pradesh, where apart from our own employees we had engaged a contractor who is a single person. This person visited the site from time to time and carried out installation and wiring work himself over a period of 6 months. We paid him approximately Rs 4.5 Lacs for the job to him in his name and deducted TDS @ 1.03% under section 194C. Will there be any ESI / PF obligation on our par on account of this contracter? Under what head should we show his payment - Labour Charges? Consultant ? Outsourcing Agent? PF inspectors like to scrutiny anything under Labour Charges head.
From your post I understand that this person is not an independent contractor for erection of your equipments but has been engaged to do so along with your own employees. He is only a casual labour to whom you pay a fixed sum, say, Rs 4.5 lakh, over a period of time, say, 6 months. Therefore, it should be booked only as Labour Charges. As the pay out per month is Rs 75000 per month neither ESI nor PF liability will arise. But make sure that he himself has done the work independently and without hiring anybody else to assist him. If so, he will have to show the accounts and payments to his workers by way of wages and that would decide the ESI/PF liability upon him or you as the Principal employer, as the case may be.

Dear Manoj,
After going through it I observed that you have worried about pf & esic liability. Moreover tds @1.03 also has been paid.
1) while paying tds under which income head you have deducted and paid. If it is under contract payment but as individual you can convert such amount in any other expenses like furniture repairing or any other nature or write off expenses in part booking expenses in way you made payment.
2)Show maximum all such amount conveyance or transportation or any other entertainment expenses paid for welfare activity.
So that all incidents of pf and esic liability will not arise and prepare all dummy bills for same.
Hope my solutions will work for you.
Sunil Choughule.

Can we not deduct TDS under 194C @1.03% for an individual who is working on his own without hiring any other person?
Mr Sunil,
You have suggested that since we have deducted TDS for this person, we can not show it as labour charges. Why?
Also is there a separate section for TDS rate for Labour charges? If not , we have no other option but to use section 194C even when the contractor is a single person.

Dear Manoj,
I would like to tell you that your first worry is was attracting of PF & ESIC. Being Single Person as contractor PF will not attract. Secondly ESIC shall definitely attract because of labour charges.
For you kind information, wherever labour charges or repairing charges or maintenance charges are involved, it shall definitely attract ESIC and not PF.
Secondly as contractor if you have deducted TDS amount by showing labour charges and any other items etc. In that case you will have to deduct ESIC.
Thirdly deduction of TDS under section 194C is fine but ESIC contribution shall be over and above TDS deduction.
The only instead of labour charges, you have to convert these labour charges in to some other expenses. So that it shall not attract ESIC.
The bill should not be showing labour charges but as labour welfare activity for employee which is safest mode of avoiding ESIC Liability.
Sunil Choughule

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