TDS on Contract

TDS on Payments to Contractors and Sub-contractors – Section 393(1), Table Sl. No. 6(i) [Earlier Section 194C]

For Tax Year 2026-27, Section 194C is represented under Section 393(1), Table Sl. No. 6(i) of the Income-tax Act, 2025.

When a person responsible for paying any sum to a resident contractor for carrying out any work, including supply of labour, in pursuance of a contract with a specified person, TDS is required to be deducted, subject to the prescribed threshold and other conditions.

What is “Work”? Work shall include the following:

1. Advertising
2. Broadcasting and telecasting including the production of programs for such broadcasting or telecasting
3. Carriage of goods and passengers by any mode of transportation, other than railways
4. Catering
5. Manufacturing or supplying of a product according to the requirement or specification of a customer by using the materials supplied from such customer, but does not include manufacturing or supplying of a product according to the requirements or specifications of a customer by using the materials purchased from a person, other than a customer.

Who is the “Specified Person”?

The contract should be with a specified person. Specified persons include:

1. Central Government;
2. State Government;
3. Local authority;
4. Corporation established by or under a Central, State or Provincial Act;
5. Company;
6. Co-operative society;
7. Specified authority engaged in housing accommodation or planning/development/improvement of cities, towns or villages;
8. Registered society;
9. Trust;
10. Individual or HUF covered by the prescribed tax-audit condition.

Who is the Payee?

The contractor/sub-contractor must generally be a Resident. Payments to non-resident contractors are dealt with under the provisions applicable to non-residents and should not be brought under this resident-contractor provision merely because the person is called a contractor.

Time of deduction:

The TDS shall be deducted while making the payment. The date of payment shall be earlier of the below:

1. Date of actual payment of cash or
2. The date of crediting the sum to the payee’s account or
3. The date of issue of cheque, draft, or by any other mode

Rate of TDS:

Contractor / Payee	TDS Rate
Individual or HUF	1%
Any other person	2%

TDS ON AMOUNT INCLUDING GST

Where GST is separately indicated in the invoice, TDS is generally deducted on the amount excluding the GST component.

Threshold limit for deduction of tax at source:

There are two separate thresholds

1. Single payment: No TDS if the amount of a single payment does not exceed ₹30,000
2. Aggregate during the tax year: Even if individual payments are ₹30,000 or less, TDS becomes applicable if the aggregate amount paid or credited to the contractor during the tax year exceeds ₹1,00,000

Exemptions:

No TDS shall be deducted in the following cases:

1. Where total amount payable during a financial year does not exceed ₹ 1,00,000 and the amount of one time payment does not exceed Rs.30,000/-
2. Payment made by an Individual or HUF exclusively for their personal purposes.
3. Payment is made to transport operator who does not own more than 10 goods carriage at any time during the previous year and who furnishes his PAN to deductor.

• Transport operator – One who is engaged in the business of plying, hiring or leasing goods carriages.

TDS on transport contractors:

• If recipient is a transport operator owns less than 10 goods carriage and he furnishes PAN to the deductor then TDS is not to be deducted. Such deductors will be required to intimate these PAN details to the Income tax Department in the prescribed format.
• Only transport operators who owns ten or less goods carriages at any time during the tax year is allowed such exemption. Transport operator has to furnish a declaration to this effect to the person paying him to get such exemption.

TDS ON CONTRACTORS – QUICK SUMMARY

Particular	Tax Year 2026-27
Old Section	194C
New provision	393(1), Table Sl. No. 6(i)
Payee	Resident contractor/sub-contractor
Individual/HUF contractor	1%
Other contractor	2%
Single-payment threshold	₹30,000
Aggregate annual threshold	₹1,00,000
Personal payment by Individual/HUF	No TDS
Transport operator exemption	Not more than 10 goods carriages + PAN
GST separately shown	Generally exclude GST from TDS base
Time of deduction	Earlier of credit/payment