TDS section 194C (now Section 393(1) Sl.6(i)) – payment to contractors & Subcontractors
Section 194C (now Section 393(1) Sl.6(i)) of the Income Tax Act
⚠️Update — As per the New IT Act 2025, this section number has been restructured. With effect from 1st April 2026, old Section 194C is now remapped to new Section 393(1) Sl.6(i). Rates and thresholds remain the same. Here is a link to all the sections and their changes – TDS & TCS RATE CHART.
In this post, we’ll discuss TDS section 194C (now Section 393(1) Sl.6(i)) on contractors, Including its other aspects. Let’s go through each section in detail:
- What is Section 194C (now Section 393(1) Sl.6(i))?
- Who must deduct TDS under Section 194C?
- Who is a contractor or a sub-contractor?
- Meaning of work under Section 194C (now Section 393(1) Sl.6(i))
- Rate of TDS under section 194C
- What is the limit for tax deduction u/s 194C?
- Under what circumstances TDS u/s 194C is not deductible?
- What are the consequences of non-compliance under this section?
- Special Considerations by Government on 194C Applicability
What is Section 194C (now Section 393(1) Sl.6(i))?
In accordance with the Income Tax Act, 1961, any person who pays an amount to a resident contractor that is in pursuance of a contract must deduct TDS from such payment. In this case, the existence of a contract determines whether TDS is due.
In other words , If you make a payment to a contractor and you both have a contract for such work, you are required to deduct TDS. Additionally, two parties involved are the contractor and the deductor of TDS with whom the contract is made and who is responsible for paying the contractor’s income.
Who must deduct TDS under Section 194C ?
Anyone making payments to a resident contractor must deduct tax deducted at source (TDS).
Specified persons mentioned here are:
- Central or state Government
- Local Authority
- Corporation
- Company
- Co-operative Society
- Firm
- Trust
- University
- Registered society
- Individual/HUF/AOP/BOI need their accounts audited under Section 44AB (a) and (b).
Who is a Contractor or a Sub-contractor?
Contractor is any person who enters into a contract with a deductor to conduct any form of work (including the supply of manpower).
Subcontractor is any person who subleases the works for the contractor or enters into a contract with a contractor for:
- Conducting either all or part of work, which the contractor has agreed to complete
- Supplying manpower for all or part of work taken by the contractor.
Meaning of work under Section 194C (now Section 393(1) Sl.6(i))?
In this section, the term “work” refers to:
- Telecasting and broadcasting, including the production of programs for such broadcasts and broadcasts
- Advertising
- Catering
- Transportation of products and persons by means other than railways.
- As defined in section 40A(2), it is permitted to manufacture or supply a product in accordance with the requirements or specifications of a customer using materials obtained from the customer or a business partner, but this does not include manufacturing or supplying a product with materials obtained from a third party that meet a customer’s requirements or specifications.
Rate of TDS under section 194C
According to Section 194C (now Section 393(1) Sl.6(i)) of the Income Tax Act, the relevant TDS rate is determined by the following conditions:
If the payee or contractor is a valid PAN holder:
- TDS of 1% shall be deducted from any payments or credits made to residents or Hindu Undivided Families (HUFs).
- Payments or credits made to anyone other than residents or Hindu Undivided Families (HUFs) are subject to TDS of 2%.
- There will be no deduction of TDS from any payments or credits made to transporters
If the payee or contractor does not have a PAN:
- TDS of 20% shall be deducted from any payments or credits made to any payee
What is the limit for tax deduction u/s 194C?
The limit for deducting TDS under Section 194C (now Section 393(1) Sl.6(i)) is as follows:
- The amount paid or credited is a single contract that exceeds Rs 30,000.
- The total amount paid or credited throughout the financial year exceeds Rs 1,00,000.
Example to explain 194C applicability
Case | Date of payment | Amount | Is TDS u/s 194C deducted ? |
1 | 12-05-2022 28-06-2022 25-10-2022 20-12-2022 | Rs.25,000/- Rs.32,000/- Rs.20,000/- Rs.25,000/- | No Yes (single exceed Rs. 30,000) Yes (as deduction already started) Yes (aggregate exceed Rs.1 lakh) deduction required on prev. 25000 also on which not deducted at first |
2. | 12-04-2022 25-05-2022 20-06-2022 20-12-2022 | Rs.30,000 /- Rs.20,000 /- Rs.20,000 /- Rs.30,000 /- | No No No No (aggregate payment not exceeds Rs. 1 lakh) |
3. | 20-04-2022 25-05-2022 | Rs.1,05,000/- Rs.5,000/- | Yes Yes |
Under what circumstances TDS u/s 194C is not deductible?
The following situations do not require tax deductions:
- When the entire amount paid or credited under a contract is less than or equal to Rs. 30,000, or
- If the total amount of such sums credited or paid or projected to be credited or paid during the financial year does not exceed Rs.1,000,000, the person responsible for paying them will not deduct TDS.
- If the funds are credited or transferred to the contractor’s account for the personal benefit of the person or any member of the HUF.
- Where the contractor is a goods transport agency who has submitted a valid PAN along with a self declaration that they owned 10 or less carriages at any time during the previous year.
- Any payment made to non-resident contractors or sub-contractor.
What are the consequences of non-compliance under this section ?
Levy of Interest : Individuals must pay interest if they do not deduct TDS or do so but do not deposit it with the government on schedule.
Disallowance of expenses : Additionally, if TDS is not deducted on time, the individual is ineligible to claim the deduction of such costs from PGBP income. The amount of disallowed expenses will be 30% of the payment.
Special Considerations by Government on 194C Applicability
CBDT has given some special considerations relating to applicability of section 194C (now Section 393(1) Sl.6(i)) which are as below:
Payment to Travel Agents:
Payments made by passengers to travel agents or airlines, on purchasing tickets, will not be liable to TDS u/s 194C. In such cases where money is paid by the agent to airlines, No TDS will be levied. But TDS will be deducted when payment is made for the hiring of bus, plane or any mode transport by an organisation for privileged usage.
Payment for Couriers:
Payments made to couriers will be liable to TDS as it involves the carriage of goods.
Payment for Serving food in restaurants:
Payments made for serving food in a restaurant in the normal course of business, will not be applicable to TDS u/s 194C.
TDS Deduction on GST Amount:
Any amount in invoice which represents GST and is indicated separately, then TDS will be levied on value excluding such GST.
We have reached the conclusion of this post on Section 194C (now Section 393(1) Sl.6(i)). Feel free to share your views and opinions with us in the comment section below.
