Section 194C — TDS on Contractor & Sub-Contractor Payments
Updated: 3 June 2026 | Income Tax Act, 1961 | Section 194C
Section 194C requires deduction of TDS on payments made to resident contractors or sub-contractors for carrying out any work (including supply of labour). TDS rate: 1% for individual or HUF contractors; 2% for all others (companies, firms, LLPs, etc.). Threshold: single payment exceeds ₹30,000 OR aggregate payments to the contractor in a financial year exceed ₹1,00,000. Applies to construction, advertising, broadcasting, catering, transport contracts, and supply agreements.
1% / 2%
TDS on contractor payments under Section 194C — 1% for individual/HUF contractors, 2% for company/firm contractors.
Section 194C — TDS Rates & Thresholds
| Contractor Type | TDS Rate | Single Payment Threshold | Annual Threshold |
|---|---|---|---|
| Individual / HUF contractor | 1% | ₹30,000 | ₹1,00,000 |
| Company / Firm / LLP / AOP / BOI | 2% | ₹30,000 | ₹1,00,000 |
| Contractor without PAN | 20% | — | — |
| Sub-contractor (individual/HUF) | 1% | ₹30,000 | ₹1,00,000 |
| Sub-contractor (others) | 2% | ₹30,000 | ₹1,00,000 |
What Contracts Are Covered Under Section 194C?
Section 194C covers any work undertaken in pursuance of a contract between a contractor and a specified person. The types of work explicitly covered include: construction, repair, or maintenance of a building, road, dam, bridge, or any other work — manufacture or supply of a product according to customer specification (excluding standard off-the-shelf products) — advertising contracts — broadcasting and telecasting — carriage of goods and passengers by any mode — catering — and labour supply contracts.
It does not apply to contracts for purely professional services (those fall under Section 194J) or to contracts with non-residents (governed by Section 195).
Frequently Asked Questions
Who deducts TDS under Section 194C?
TDS under Section 194C must be deducted by any person (resident or non-resident) who pays or credits any sum to a resident contractor or sub-contractor. However, individuals and HUFs are only required to deduct TDS under 194C if their books of accounts are required to be audited under Section 44AB (i.e., turnover exceeds the tax audit threshold). Individuals and HUFs with turnover below the audit threshold are not required to deduct TDS on contractor payments.
What is the limit for TDS under Section 194C?
TDS is not required under Section 194C if the single payment to a contractor does not exceed ₹30,000, AND the aggregate payments to the same contractor during the financial year do not exceed ₹1,00,000. Once either limit is crossed, TDS must be deducted on all payments to that contractor, including the very first payment. The ₹1 lakh annual limit is tracked per contractor (PAN-wise).
Is the TDS rate for sub-contractors the same as contractors?
Yes, the same Section 194C rates apply to sub-contractors as to contractors: 1% for individual/HUF sub-contractors and 2% for all other sub-contractors (companies, firms, LLPs, etc.). Sub-contractors are explicitly covered under Section 194C(1). However, no TDS is required if the sub-contract is for supply of labour only (e.g., purely labour contracts where no material is supplied and the contract is solely for services). Verify contract terms carefully.
When should TDS be deducted on advance payment to a contractor?
TDS under Section 194C must be deducted at the time of credit to the account of the contractor or at the time of actual payment — whichever is earlier. This means if you make an advance payment to a contractor, TDS must be deducted at the time of making that advance. You cannot defer TDS deduction to the time of final settlement. This is a common compliance mistake that leads to disallowance of the expense and interest on TDS.
Is TDS deductible on labour charges under Section 194C?
Yes, TDS under Section 194C applies to labour supply contracts as well, since providing labour is considered a "work" contract. This includes housekeeping, security services, staffing, and similar arrangements where a contractor provides manpower. However, direct employment of workers (employer-employee relationship) is not a contract for work under 194C. If labour is hired through a contractor, TDS @ 1% (individual/HUF contractor) or 2% (company/firm contractor) applies on the gross payment including service charges.
Related Pages
Need Help with TDS Compliance Under 194C?
Our CA team handles TDS deduction calculations, Form 26Q filing, challan deposits, and contractor TDS compliance — 100% online.
Get TDS Filing Help →◆ Available in 71 Cities
Section 194c Near You
Expert CA/CS assistance for section 194c across India. Click your city for local details.
→
New Delhi
→
Mumbai
→
Bengaluru (Bangalore)
→
Hyderabad
→
Chennai
→
Kolkata
→
Pune
→
Ahmedabad
→
Noida (UP)
→
Gurgaon (Gurugram)
→
Jaipur
→
Lucknow
→
Chandigarh
→
Surat
→
Kochi (Cochin)
→
Faridabad
→
Ghaziabad
→
Greater Noida
→
Panipat
→
Sonipat
→
Manesar (IMT)
→
Dharuhera
→
Mathura
→
Palwal
→
Agra
→
Kosi Kalan
→
Aligarh
→
Khair
→
Jewar (Noida International Airport)
→
Kanpur
→
Varanasi (Kashi)
→
Prayagraj (Allahabad)
→
Meerut
→
Bareilly
→
Moradabad
→
Gorakhpur
→
Firozabad
→
Saharanpur
→
Muzaffarnagar
→
Bulandshahr
→
Hapur
→
Karnal
→
Kurukshetra
→
Ambala
→
Hisar
→
Rohtak
→
Yamunanagar
→
Rewari
→
Bhiwani
→
Jodhpur
→
Udaipur
→
Kota
→
Ajmer
→
Bikaner
→
Ludhiana
→
Amritsar
→
Jalandhar
→
Patiala
→
Mohali (SAS Nagar)
→
Bathinda
→
Dehradun
→
Haridwar
→
Rudrapur
→
Shimla
→
Solan (Baddi-Barotiwala-Nalagarh)
→
Bhopal
→
Indore
→
Gwalior
→
Jammu
→
Srinagar
→
Panchkula