Section 194C  ·  FY 2025-26  ·  AY 2026-27

Section 194C – TDS on Contractor Payments
FY 2025-26

Complete guide to TDS deduction on contractor and sub-contractor payments under Section 194C of the Income Tax Act 1961. Rates, threshold limits, transporter exemption, and practical examples for FY 2025-26.

✅ 1% – Individual/HUF ✅ 2% – Company/Firm ✅ ₹30,000 / ₹1L Threshold ✅ Transporter Exemption Covered
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1%
Individual / HUF
Contractor payment
2%
Company / Firm
Contractor payment
20%
No PAN Furnished
Section 206AA applies
Nil
Transporter
With PAN + Declaration (≤10 trucks)
Section 194C Rate Chart

TDS Rate Table – Section 194C FY 2025-26

All contractor categories, thresholds, and applicable TDS rates at a glance.

Category Nature of Payment Threshold (₹) Individual/HUF (%) Co./Firm/Others (%) No PAN (%)
Section 194C – Payments to Contractors / Sub-Contractors
194C Contractor – Individual / HUF ₹30,000 per contract
₹1,00,000 aggregate		 1% N/A 20%
194C Contractor – Company / Firm / Co-op / AOP / BOI ₹30,000 per contract
₹1,00,000 aggregate		 N/A 2% 20%
194C Sub-contractor – Individual / HUF ₹30,000 per contract
₹1,00,000 aggregate		 1% N/A 20%
194C Sub-contractor – Company / Firm ₹30,000 per contract
₹1,00,000 aggregate		 N/A 2% 20%
194C Transporter – PAN furnished + Declaration (≤10 trucks) Any amount Nil Nil 20%
194C Transporter – No declaration / >10 trucks ₹30,000 / ₹1,00,000 1% 2% 20%

📌 Important Notes – Section 194C

Note 1TDS is deducted on the amount of the payment or credit, whichever is earlier. The threshold of ₹30,000 per single payment and ₹1,00,000 aggregate in a financial year must both be checked.
Note 2The transporter exemption (Nil TDS) applies only when the transporter furnishes PAN and a written declaration that they own 10 or fewer goods carriages at any point during the year.
Note 3TDS under 194C applies only to specified persons: Central/State Government, local authority, statutory corporation, company, cooperative society, trust, university, or any person whose accounts are audited under any law.
Note 4Surcharge and Health & Education Cess (4%) are not applicable on TDS deducted under Section 194C for resident payees.
Note 5If the contractor does not furnish PAN, TDS must be deducted at 20% under Section 206AA — irrespective of the nature of the contractor.
Practical Examples

Worked Examples – Section 194C TDS Calculation

Real-world scenarios to understand how 194C TDS is applied in practice.

🏗️ Example 1 — Construction Contractor (Company)
Contract Value₹5,00,000
Payee TypePvt. Ltd. Company
TDS Rate (Sec 194C)2%
TDS Amount₹10,000
Net Payment to Contractor₹4,90,000
🧑‍🔧 Example 2 — Freelance Contractor (Individual)
Contract Value₹80,000
Payee TypeIndividual
TDS Rate (Sec 194C)1%
TDS Amount₹800
Net Payment to Contractor₹79,200
🚛 Example 3 — Transporter with Valid Declaration
Transport Charge₹2,00,000
PAN FurnishedYes
Declaration SubmittedYes (owns ≤10 trucks)
TDS RateNil
Net Payment₹2,00,000
⚠️ Example 4 — Contractor Without PAN
Contract Value₹50,000
PAN FurnishedNo
TDS Rate (Sec 206AA)20%
TDS Amount₹10,000
Net Payment₹40,000
FAQ

Frequently Asked Questions – Section 194C

Section 194C deals with TDS (Tax Deducted at Source) on payments made to contractors and sub-contractors. Any specified person making a payment to a resident contractor for carrying out work (including supply of labour) must deduct TDS at 1% for Individual/HUF and 2% for others, subject to threshold limits.
TDS under Section 194C is applicable when: (a) a single contract payment exceeds ₹30,000, OR (b) aggregate payments to the same contractor during the financial year exceed ₹1,00,000. If either condition is met, TDS applies on the full payment amount.
TDS under Section 194C is deducted on the gross amount of the contract (including material + labour). However, if the contractor separately invoices for materials and labour in separate bills, TDS may apply only to the labour/service portion. The CBDT has clarified this in various circulars — in case of a composite contract, TDS applies to the full invoice value.
Section 194C covers a wide range of work including: advertising, broadcasting, telecasting, transport of goods or passengers, catering, manufacturing or supply of products to meet customer specifications, construction contracts, and any work that involves supply of labour. It does not cover the purchase of standard goods off-the-shelf.
TDS deducted under Section 194C must be deposited by the 7th of the following month (e.g., TDS deducted in April must be deposited by 7th May). For March, the due date is 30th April. Late payment attracts interest at 1.5% per month from date of deduction to date of deposit.
Specified persons include: Central/State Government, local authority, statutory corporation, company registered under Companies Act, co-operative society, authority constituted by law, trust, university, and any person whose accounts are audited under any law (e.g., individuals/HUF under Section 44AB). Individuals and HUFs below tax audit threshold are NOT required to deduct TDS under 194C (they may instead be covered under 194M).
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Section 194C TDS – Complete Reference for FY 2025-26

Section 194C TDS rate for FY 2025-26 is 1% for Individual/HUF contractors and 2% for Company/Firm contractors. The TDS on contractor payment applies when a single payment exceeds ₹30,000 or aggregate payments exceed ₹1 lakh during the year. The 194C threshold limit must be monitored throughout the financial year. TDS on sub-contractor payments follows the same rates. For transporter TDS 194C, deduction is Nil if the transporter furnishes PAN and a valid declaration stating ownership of 10 or fewer vehicles. All contractor TDS rates FY 2025-26 are as per the Finance Act 2025 and CBDT notifications.