Section 194C requires TDS on any sum paid or credited to a resident contractor or sub-contractor for carrying out any work (including supply of labour). The rate is 1% for an individual or HUF contractor and 2% for all others (company, firm, LLP, AOP/BOI). No TDS if a single payment is ₹30,000 or less AND aggregate payments in the financial year stay at or below ₹1,00,000 — once either limit is crossed, deduct on all payments to that contractor.
Section 194C — TDS Rates & Thresholds
The TDS rate and threshold for every payee type under Section 194C for FY 2025-26. TDS is deducted on the invoice value excluding GST where GST is shown separately. See the full TDS rate chart 2025-26.
| Payee (contractor / sub-contractor) | TDS Rate | Single Payment | Annual (FY) |
|---|---|---|---|
| Individual / HUF contractor | 1% | ₹30,000 | ₹1,00,000 |
| Company / firm / LLP / AOP / BOI | 2% | ₹30,000 | ₹1,00,000 |
| Sub-contractor — individual / HUF | 1% | ₹30,000 | ₹1,00,000 |
| Sub-contractor — others | 2% | ₹30,000 | ₹1,00,000 |
| Contractor without PAN (s.206AA) | 20% | — | — |
| Transporter (≤10 goods carriages) with PAN & declaration | Nil | — | — |
Rates and thresholds are unchanged for FY 2025-26 — Budget 2025 did not revise Section 194C. There is no surcharge or cess on TDS for resident payees.
You may pay a contractor four bills of ₹28,000 each — all below ₹30,000. But the moment the FY total crosses ₹1,00,000, TDS becomes due on the entire ₹1,12,000, including the earlier bills already paid. Track payments PAN-wise across the year, not bill by bill.
Threshold & Timing of Deduction
No TDS is required under Section 194C only when both conditions hold — the single payment does not exceed ₹30,000 and the aggregate to that contractor in the financial year does not exceed ₹1,00,000. If either limit is breached, deduct TDS on all payments to that contractor (PAN).
- ₹30,000 — per single contract / payment
- ₹1,00,000 — aggregate to one contractor in the financial year
- TDS is deducted at the time of credit or payment, whichever is earlier — so an advance to a contractor attracts TDS at the time of the advance.
1% Individual contractor — ₹2,00,000 bill
2% Company contractor — ₹2,00,000 bill
A common mistake is deferring TDS to final settlement. Because deduction is triggered at credit or payment — whichever is earlier — an advance payment to a contractor must have TDS deducted then. Missing this leads to 30% expense disallowance under Section 40(a)(ia) plus interest under Section 201.
Paying contractors and unsure when to deduct? Get your 194C compliance reviewed.
Talk to a TDS Expert →Who Must Deduct TDS Under Section 194C?
Any person paying a resident contractor must deduct TDS — companies, firms, LLPs, trusts, government, local authorities and co-operative societies. For individuals and HUFs, deduction is required only if their books were subject to tax audit under Section 44AB in the preceding year (turnover above the audit threshold). Individuals/HUFs also do not deduct on payments for personal (non-business) purposes.
- Obtain TAN before deducting
- Deduct at credit or payment, whichever is earlier
- Deposit challan by the 7th of the next month
- File quarterly Form 26Q
- Issue Form 16A to the contractor
- Track ₹1 lakh aggregate PAN-wise
Section 206AB — the higher-rate deduction for contractors who had not filed their returns — was repealed with effect from 1 April 2025. You no longer need to run a compliance-status check on each contractor before deducting under 194C; only the Section 206AA higher rate (20%) for a missing PAN survives.
File your Form 26Q and issue Form 16A correctly and on time.
Get TDS Return Filing →What "Work" Is Covered Under 194C?
Section 194C applies to any work carried out under a contract with a resident. Where the payment is not for "work" but for professional or technical services, Section 194J applies instead; payments to a non-resident fall under Section 195.
- Construction, repair or maintenance of buildings, roads, dams, bridges
- Advertising, broadcasting and telecasting contracts
- Carriage of goods and passengers (transport contracts)
- Catering services
- Manufacture or supply of a product to customer specification (using material bought from that customer)
- Supply of labour / manpower (housekeeping, security, staffing)
Under the Income-tax Act, 2025 (applicable from AY 2026-27), the contractor-TDS provision is renumbered as Section 393. The substance — 1% / 2% rates and the ₹30,000 / ₹1,00,000 thresholds — is unchanged. The familiar "194C" reference remains valid for FY 2025-26 and is what most deductors still use.
| Payment for | Section | Typical rate |
|---|---|---|
| Contractor / sub-contractor "work" | 194C | 1% / 2% |
| Professional / technical fees | 194J | 2% / 10% |
| Rent of plant, land or building | 194I | 2% / 10% |
| Purchase of goods > ₹50L | 194Q | 0.1% |
Overlap is common: a single vendor may attract 194C on works and 194J on design/consultancy — split the contract correctly.
Section 194C — Frequently Asked Questions
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