TDS on Transportation Charges: TDS Rate, Limit, Applicability, Section

Transportation plays a vital role in business operations, whether it’s the movement of raw materials, finished goods, or machinery. However, apart from the logistical aspects, there is also a compliance angle that businesses must manage — specifically, TDS on freight charges. Understanding how Tax Deducted at Source (TDS) applies to transportation or freight expenses helps businesses avoid penalties and stay compliant with the Income Tax Act. 

In this blog, we’ll explain the applicability, rate, limit and relevant section of TDS on freight charges along with examples and exemptions to simplify your tax planning. 

What are Freight Charges?

Freight charges refer to the cost incurred for transporting goods from one place to another. Businesses often engage transport contractors or logistics companies to deliver goods across cities and states and these payments are usually subject to TDS provisions under the Income Tax Act. 

Applicability of TDS on Freight Charges

TDS on freight charges or transportation is governed by Section 194C of Income Tax Act, 1961. As per this section, any person(other than an individual or HUF not subject to audit) making a payment too a transporter for carrying out any work – including transportation of goods – is required to deduct TDS. 

This means that if a business pays a transporter(individual, firm, or company) for logistics services, and the total payment exceeds the threshold limits, TDS must be deducted at the time of credit or payment, whichever is earlier.

Key Conditions for TDS on Freight Charges Under Section 194C

Here’s when TDS is applicable on freight:

• The payment is made to a contractor or subcontractor for carriage of goods (excluding railways).
• The aggregate amount paid or credited during the financial year exceeds ₹1,00,000 or a single payment exceeds ₹30,000.
• The transporter does not furnish a valid PAN and declaration (explained below).

TDS Rate on Freight Charges

The TDS rates on freight charges are as follows: 

• 1% if the payment is made to an individual or a Hindu Undivided Family(HUF). 
• 2% if the payment is made to a firm or company. 

Note: If the transporter does not provide PAN, TDS must be deducted at the higher rate of 20%

Exemption for Transporters Owning 10 or Fewer Goods Carriages

According to a specific provision under Section 194C(6), TDS is not required to be deducted if the following conditions are satisfied:

1. The transporter is engaged only in the business of plying, hiring, or leasing goods carriages. 
2. The transporter owns 10 or fewer goods carriages at any time during the year. 
3. The transporter provides a decoration to this effect along with their PAN. 

If the transporter meets all these criteria and furnishes the declaration, the payer is not liable to deduct TDS on freight charges paid to them.

How to Comply with TDS on Freight Charges

Here is a step-by-step overview of TDS compliance on freight charges:

• Verify PAN Declaration: Check if the transporter qualifies for exemption and has submitted the required documents.
• Deduct TDS: If no exemption applies, deduct TDS at 1% or 2% depending on the status of the transporter. 
• Deposit TDS: TDS must be deposited with the government by the 7th of the following month. 
• File TDS Returns: Include these payments in your quarterly returns(Form 26Q). 
• Issue TDS Certificates: Provide TDS certificates (Form 16A) to the transporter. 

Example For TDS on Transportation Charges 

Let’s say a company makes the following payments to a transporter: 

• ₹35,000 in April
• ₹28,000 in July
• ₹40,000 in November

Since the total during the financial year exceeds ₹100000, the company must deduct TDS on all these payments if the transporter hasn’t submitted the declaration under Section 194C(6). 

Assuming the transporter is a partnership firm, the company must deduct 2% TDS on the total of ₹1,03,000 — i.e., ₹2,060.

Consequences of Non-Compliance

Failing to deduct or deposit TDS on freight charges can lead to: 

• Disallowance of the expense under Section 40(a)(ia): Up to 30% of transport payment disallowed. 
• Interest Penalties
  • 1% per month for late deduction
  • 1.5% per month for late deposit

• Late filing fees: ₹200/day under Section 234E
• Penalty up to ₹1 lakh under Section 271H. 

Conclusion

Understanding the provisions around TDS on freight charges helps businesses stay tax-compliant and avoid unnecessary complications. Whether you’re a small enterprise or a large corporation, keeping track of transporter declarations, monitoring payment thresholds, and timely depositing TDS are essential aspects of responsible financial management.

If you’re unsure about TDS applicability or exemptions in specific cases, it’s always best to consult a qualified tax professional.