TDS on Contractor Payments 2025-26 — Section 194C Rate, Threshold & Sub-Contractor Rules

Updated: 3 June 2026 | FY 2025-26 | Section 194C | Income-tax Act, 2025

TDS under Section 194C applies to payments made to contractors and sub-contractors for carrying out any work. Rate: 1% when the payee is an individual or HUF; 2% for companies, firms, LLPs, and other entities. Threshold: ₹30,000 per single payment or ₹1,00,000 aggregate per financial year. Transport contractors who furnish their PAN are exempt from TDS. Sub-contractors are also covered under the same section.

1% / 2%

Section 194C TDS: 1% for individual/HUF contractors, 2% for all other contractors.
Threshold: ₹30,000 per payment or ₹1,00,000 aggregate per year. Transport contractor: Nil if PAN on record.

Section 194C — TDS Rate Summary

Contractor Type	TDS Rate	Threshold	Notes
Individual / HUF contractor	1%	₹30,000/payment or ₹1L/year	Applies to sub-contractors too
Company / Firm / LLP / AOP / BOI	2%	₹30,000/payment or ₹1L/year	Applies to sub-contractors too
Transport contractor (PAN furnished)	Nil	N/A	Goods carriage only; PAN must be on record
Transport contractor (no PAN)	20%	N/A	Section 206AA applies

What is a "Works Contract" Under Section 194C?

Section 194C covers payments for carrying out any "work" — defined broadly to include:

Category	Examples	Covered Under 194C?
Advertising	Printing of hoardings, production of ad films	Yes
Broadcasting & telecasting	TV/radio production contracts	Yes
Carriage of goods/passengers	Truck transport, courier services	Yes
Catering	Corporate canteen, event catering	Yes
Construction	Building, civil works, renovation	Yes
Manufacturing to specification	Custom fabrication per buyer's design	Yes
Standard product purchase	Off-the-shelf goods from stock	No — not a works contract
Professional / technical fees	CA fees, IT consulting, legal fees	No — covered under Section 194J

Section 194C vs Section 194J — Key Differences

Factor	Section 194C (Contractor)	Section 194J (Professional)
Nature of payment	Works contract / labour contract	Professional or technical fees
TDS rate	1% (individual/HUF), 2% (others)	10% (professional), 2% (technical)
Threshold	₹30,000/payment or ₹1L/year	₹30,000/year per payee
Examples	Construction, printing, transport, catering	CA, doctor, lawyer, architect, IT consultant
Software development	Work contract for product delivery	Consulting / technical services engagement

Transport Contractor Exemption — PAN Requirement

Payments to a contractor engaged in the business of plying, hiring, or leasing goods carriages are exempt from TDS under Section 194C, provided the contractor furnishes their PAN to the payer. The payer must maintain a record of the PAN. If the transporter fails to provide their PAN, TDS at the higher rate of 20% applies under Section 206AA. This exemption covers only goods carriage — it does not extend to passenger transport or courier services.

Who Must Deduct TDS Under Section 194C?

TDS under Section 194C must be deducted by:

Deductor Category	Applicability
Central / State Government	Always applicable
Company (public or private)	Always applicable
Firm / LLP / AOP / BOI	Always applicable
Co-operative society	Always applicable
Local authority, corporation, university, hospital	Always applicable
Individual / HUF	Only if books subject to tax audit (Section 44AB) in preceding year

An individual or HUF whose gross receipts from business do not exceed ₹1 crore (or ₹50 lakh from profession) and who is not otherwise required to get books audited under Section 44AB is not required to deduct TDS under Section 194C.

Deposit & Compliance Requirements

TDS deducted under Section 194C must be deposited to the government by the 7th of the following month (for government deductors, by the same day). For March deductions, the deadline is 30th April. Quarterly TDS returns must be filed in Form 24Q / 26Q. The payee receives credit of TDS in Form 26AS and can claim it when filing ITR.

Frequently Asked Questions

What is the TDS rate under Section 194C on contractor payments?

Under Section 194C of the Income-tax Act, 2025 (formerly the 1961 Act), TDS is deducted at 1% when the payment is made to an individual or HUF contractor, and at 2% when the payment is made to any other contractor (company, firm, LLP, AOP, BOI, etc.). The threshold is ₹30,000 per single payment or ₹1,00,000 in aggregate in a financial year. Once the aggregate exceeds ₹1,00,000, TDS applies from the first rupee retrospectively.

Does TDS under Section 194C apply to sub-contractors?

Yes. Section 194C explicitly covers sub-contractors. When a contractor makes payment to a sub-contractor for carrying out the whole or part of the work undertaken by the contractor, TDS at 1% (individual/HUF sub-contractor) or 2% (others) must be deducted. However, the sub-contractor threshold is ₹30,000 per single payment or ₹1,00,000 in aggregate per financial year — the same as for primary contractors.

Is TDS under Section 194C applicable to transport contractors?

No TDS is required on payments to transport contractors (goods carriage operators) if the transporter provides their PAN (or Aadhaar-linked PAN) to the payer at the time of payment. This exemption is available only to a contractor who is engaged in the business of plying, hiring, or leasing goods carriages. Once the PAN is furnished and recorded, TDS rate becomes Nil. If PAN is not provided, TDS at 20% applies under Section 206AA.

What is a "works contract" under Section 194C?

Section 194C covers payments for carrying out any work — including supply of labour for carrying out work — in pursuance of a contract. "Work" is broadly defined to include advertising, broadcasting, carriage of goods/passengers by any mode, catering, manufacturing or supplying a product per customer's specification (but not purchase of standard items from open market), and construction/repair/maintenance. Both supply contracts (where materials are also supplied) and pure labour contracts are covered. An important test: standard off-the-shelf products sold without customisation are NOT covered under 194C.

Who is required to deduct TDS under Section 194C?

The following persons are required to deduct TDS under Section 194C: (1) Central or State Government; (2) Local authority; (3) Central/State Government corporation; (4) Company; (5) Co-operative society; (6) Housing Board; (7) University; (8) Hospital; (9) Firm; (10) Individual or HUF whose books of accounts are required to be audited under Section 44AB (tax audit) in the immediately preceding financial year. If an individual or HUF does not have a tax audit obligation, they are NOT required to deduct TDS under 194C, even if they make large contractor payments.

TDS Rate Chart 2025-26 TDS on Professional Fees (194J) Section 206AB Higher TDS TDS on Rent (194I) File ITR

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