TDS on Payments to contractors and sub-contractors — Section 194C (now 393)

Q: What is the new section number for 194C from FY 2026-27?

Under the Income Tax Act 2025, 194C now falls under Section 393. The payment/return code is 1023 or 1024.

Q: What is the TDS rate under section 194C?

1% for individual_huf; 2% for other. If the payee has no valid PAN, 20% applies (or the normal rate, whichever is higher).

Q: Which TDS return is 194C reported in?

Form 140 (was 26Q), filed quarterly.

Rate (with PAN)

1% / 2%

Threshold

₹30k / ₹1 L

Payment code

1023 / 1024

Return form

140

In short

194C (now Section 393 under the Income Tax Act 2025) applies to payments to contractors and sub-contractors. Deduct at 1% / 2% once payments cross ₹30k / ₹1 L. Pay using code 1023 and report in Form 140.

Rate

Type of payment	Rate (with PAN)	Notes
individual_huf	1%	—
other	2%	—

No valid PAN: 20% or the normal rate, whichever is higher (Section 397(2), old 206AA).

Threshold

TDS applies when: ₹30,000 (single bill), or ₹1,00,000 aggregate in the year. Once a threshold is crossed, TDS applies on the full amount, not just the excess.

Worked example

Paying ₹50,000 (plus GST) to a company contractor on 10 June 2026:

Basic amount (ex-GST)₹50,000

Rate applied2%

TDS to deduct₹1,000

Deposit by (code 1024)7 Jul 2026

Report inForm 140, Q1

Exemptions & relief

Transporter owning <= 10 goods carriages furnishing PAN + declaration u/s 194C(6) — NO TDS; retain declaration
Personal-purpose payments by individual/HUF — no TDS under this section
Material value excluded where invoiced separately (works contract composite rules)

If you get it wrong

Late deduction: 1% per month or part thereof, from date deductible to date deducted.

Late deposit: 1.5% per month or part thereof, from date deducted to date deposited.

Late return: Rs 200/day (234E equivalent), capped at TDS amount in the statement.

Non-deduction: 30% of expenditure disallowed for non-deduction/non-deposit (40(a)(ia) equivalent); wrong payment code can trigger the same — verify scope under 2025 Act.

Good to know

Either threshold crossed → TDS on FULL amount, not the excess
Common error: treating pure supply of goods as 194C 'work'

FAQs

What is the new section number for 194C from FY 2026-27?

Under the Income Tax Act 2025, 194C now falls under Section 393. The payment/return code is 1023 or 1024.

What is the TDS rate under section 194C?

1% for individual_huf; 2% for other. If the payee has no valid PAN, 20% applies (or the normal rate, whichever is higher).

What is the threshold for 194C?

₹30,000 (single bill), or ₹1,00,000 aggregate in the year.

Which TDS return is 194C reported in?

Form 140 (was 26Q), filed quarterly.

Written and reviewed by a CA firm. Verified 2026-06-08 against the Income Tax Act 2025 / Finance Act 2025. General information, not advice for your specific case.