Section 194C: TDS on Contractors & Sub-Contractors (FY 2025–26 Complete Guide)
Payments to contractors and sub-contractors are extremely common across industries — construction, logistics, manufacturing, IT services, and marketing. Section 194C governs TDS on contract payments, and errors here are among the top triggers for TDS...
Payments to contractors and sub-contractors are extremely common across industries — construction, logistics, manufacturing, IT services, and marketing.
Section 194C governs TDS on contract payments, and errors here are among the top triggers for TDS notices.
This WonderTax guide explains:
Applicability of Section 194C
Rates & thresholds
Special rules for transporters
GST impact
Practical examples
What Is Section 194C?
Section 194C requires deduction of TDS on payments made for:
Carrying out any work
Supply of labour for any work
“Work” Includes:
Construction & civil contracts
Advertising
Catering
Transport contracts
Job work
Manufacturing using customer material
Who Must Deduct TDS Under Section 194C?
| Deductor | TDS Applicable? |
| Company | Yes |
| LLP | Yes |
| Partnership firm | Yes |
| Individual/HUF (tax audit) | Yes |
| Individual/HUF (non-audit) | No |
Threshold Limit Under Section 194C
TDS applies only if:
Single contract > ₹30,000, OR
Aggregate payments > ₹1,00,000 in a financial year (per payee)
TDS Rates Under Section 194C
| Payee Type | TDS Rate |
| Individual / HUF | 1% |
| Others (Company, Firm, LLP) | 2% |
| PAN Status | TDS Rate |
| PAN provided | Normal |
| PAN not provided | 20% |
GST Impact on Section 194C
If GST is shown separately in invoice:
TDS is deducted only on base amount
GST is excluded from TDS
Example:
Contract value: ₹1,00,000
GST @18%: ₹18,000
👉 TDS @1% or 2% on ₹1,00,000 only
Special Case: Transporters (Very Important)
No TDS under Section 194C if:
Transporter owns ≤ 10 goods carriages
PAN is provided
Declaration is taken
If PAN not provided → TDS @20% applies
Example 1: Construction Contractor
Payment: ₹5,00,000
Contractor is a company
👉 TDS @2% = ₹10,000
👉 Net payment = ₹4,90,000
Example 2: Advertising Agency (Individual)
- Total annual payments: ₹1,20,000
👉 TDS @1% = ₹1,200
Compliance Requirements
Deduct TDS: At credit or payment (earlier)
Deposit: By 7th of next month
Return: Form 26Q (quarterly)
Certificate: Form 16A
Common Mistakes Under Section 194C
Ignoring aggregate threshold
Deducting TDS on GST
Not collecting transporter declarations
Wrong rate application
PAN errors
Internal Links (WonderTax)
TDS Return Filing Services
https://wondertax.in/tds-return-filingGST & TDS Compliance Support
https://wondertax.in/gst-return-filingIncome Tax Notice Handling
https://wondertax.in/services/income-tax-notice-handling
CTA – WonderTax
👉 Need help with contractor TDS or transporter compliance?
