TDS on Contractor Payments (Section 194C / 393): Rates, Limits & Examples — FY 2026-27

2026-06-09 · 6 min read · by a CA firm

Contractor payments are the most common TDS most businesses deal with. Here is exactly how Section 194C (now part of Section 393 under the Income Tax Act 2025) works in FY 2026-27.

The rate: 1% or 2%

The rate depends on who the contractor is. If the contractor is an individual or HUF, deduct 1%. If the contractor is a company, firm, LLP or any other entity, deduct 2%. If the contractor has no valid PAN, the rate jumps to 20%.

The threshold: two tests

TDS applies the moment either of these is crossed: a single payment above ₹30,000, OR total payments in the year above ₹1,00,000 to the same contractor. The catch most people miss: once a limit is crossed, TDS applies to the full amount, not just the part above the limit.

Worked example

You pay a company contractor ₹50,000 for civil work. The single payment exceeds ₹30,000, so TDS applies on the whole ₹50,000 at 2% = ₹1,000. You deposit it by the 7th of the next month using the contractor payment code, and report it in Form 140 for that quarter.

The transporter exemption

No TDS is required on payments to a goods transporter who owns 10 or fewer goods carriages, provided they give you their PAN and a written declaration. Collect and retain that declaration every year — it is the document an officer will ask for.

What counts as a "contract"?

Works contracts, labour supply, advertising, broadcasting, transport, catering, manufacturing to your specification, AMC, housekeeping and security all fall here. Pure supply of goods does not. Be careful not to treat a goods purchase as 194C work.

For the full breakdown including exemptions and consequences, see our Section 194C guide, or check a specific payment with the TDS Wizard.

This article is general information for FY 2026-27, not advice for your specific case. Verify against the latest law or talk to a CA.