194C TDS is the tax a business deducts when it pays a contractor for work: 1% if the contractor is an individual or HUF, and 2% for a firm, company or anyone else. It applies once a single bill crosses ₹30,000 or the bills to that contractor in the year add up to more than ₹1,00,000.
Work here means far more than construction. Printing, catering, transport, advertising, labour supply and making goods to your design all count. The rules below cover FY 2025-26 under the 1961 Act, and the same payments now sit in the TDS table of the 2025 Act. For other payment types, see the full TDS rate chart.
Quick facts
Rate
1% individual or HUF contractor, 2% othersSingle bill limit
₹30,000Yearly limit
₹1,00,000 in total to one contractorNo PAN given
20%Who deducts
Any person paying for work, except individuals and HUFs paying for personal useDeposit by
7th of the next month; 30 April for MarchUnder the 2025 Act
Covered in the TDS table under section 393
194C TDS rate and limits at a glance
| Who receives the payment | Rate with PAN | Rate without PAN |
|---|---|---|
| Individual or HUF contractor | 1% | 20% |
| Firm, LLP, company, trust, AOP | 2% | 20% |
| Transporter with 10 or fewer goods carriages who gives a declaration and PAN | Nil | 20% |
Deduction starts when either limit is crossed. A ₹35,000 bill attracts TDS on the full ₹35,000. Four bills of ₹28,000 each to one supplier in a year total ₹1,12,000, so TDS applies to all four once the yearly figure passes ₹1 lakh, including the bills already paid.
What counts as work under section 194C of the Income Tax Act
- Advertising: TDS on advertisement bills applies when you buy ad space or a campaign from an agency.
- Broadcasting and telecasting, including making programmes for broadcast.
- Carriage of goods or passengers by any mode except railways, which is why freight bills and staff bus contracts fall here.
- Catering for an office canteen or an event.
- Manufacturing to order when the customer supplies the material. If the contractor buys the material himself, the material part is a sale of goods, not work.
- Labour supply for any job, such as loading, housekeeping or a site crew. TDS on labour charges follows the same 1% or 2% rule.
Professional services such as legal, audit or design advice are not work under this section. They fall under 194J. Brokerage and agency commission go to 194H.
Worked examples of TDS on contractor payments
Painting a shop. A retailer pays ₹48,000 to a painting firm (a partnership) in one bill. The bill is above ₹30,000 and the payee is a firm, so TDS is 2%: ₹960. The firm receives ₹47,040 and later claims the ₹960 in its own return.
Small repair bills that add up. A clinic uses one plumber, an individual, for monthly repairs: ₹9,000 each month. No single bill crosses ₹30,000, but by the twelfth month the total reaches ₹1,08,000. TDS at 1% applies on the whole ₹1,08,000, so ₹1,080 must be deducted, usually from the bill that crosses the limit.
If the bill shows GST separately, TDS is worked out on the amount without GST.
TDS on transport and freight charges
Freight is the part of 194C that confuses most accounts teams. Payments to a transporter are work, so TDS applies at 1% or 2% like any other contract. The exception is a small operator: a transporter who owns ten or fewer goods carriages at any time in the year, gives a written declaration saying so and quotes PAN, is paid without TDS.
Keep the declaration on file and report these payments in the quarterly TDS return even though no tax was deducted. Without the PAN, the full 20% rate applies.
Who must deduct and when
Any person who pays a resident contractor must deduct, including companies, firms, trusts, cooperative societies and government bodies. Individuals and HUFs must deduct only if their business or profession needed a tax audit in the previous year. Nobody deducts on payments made only for personal purposes, such as a family paying a builder to redo their own kitchen.
Tax is deducted at the time of credit to the contractor's account or at payment, whichever comes first. A bill booked in March and paid in April carries TDS in March. Deposit it with Challan 281 by the 7th of the next month, file the quarterly return (Form 26Q) and give the contractor a TDS certificate.
Section 194C under the Income-tax Act, 2025
From 1 April 2026 the 2025 Act has applied. Payments to contractors are now one entry in the single TDS table of section 393, and the year is called the tax year. The rates and limits carry over: 1% or 2%, ₹30,000 a bill, ₹1,00,000 a year. What changes is the reference. Bills credited or paid on or after 1 April 2026 are reported under the new section and form codes, while anything for FY 2025-26 stays under 194C. Read what the new Act changed for the wider picture.
Common 194C mistakes and how to fix them
| Mistake | Fix |
|---|---|
| Deducting only on bills above ₹30,000 and ignoring the yearly total | Track totals per contractor and deduct on the full amount once ₹1 lakh is crossed |
| Deducting 2% from an individual contractor | Check the fourth letter of the PAN: P means individual, H means HUF, so 1% |
| Treating a design consultant as a contractor | Professional or technical fees go under 194J |
| Late deposit | Pay interest at 1.5% a month from the date of deduction; see TDS interest |
This page is general information about Indian tax rules, not advice for your case. Rules change; check the e-filing portal or a chartered accountant before you act.
Sources we checked
- Income-tax Act, 1961, section 194C
- Income-tax Act, 2025, section 393
- Income-tax Act, 1961, section 206AA
Frequently asked questions
What is the 194C TDS rate for contractors?
The rate is 1% when the contractor is an individual or HUF and 2% for everyone else, such as firms and companies. If the contractor does not give a PAN, the rate is 20%.
What is the TDS on contractor limit under 194C?
TDS applies when a single bill is more than ₹30,000 or when the total paid to one contractor in the year is more than ₹1,00,000. Once the yearly limit is crossed, TDS is due on the whole yearly amount.
Is TDS deducted on transportation charges under 194C?
Yes, freight and transport payments are work under 194C. A transporter with ten or fewer goods carriages who gives a declaration and PAN is paid without TDS.
Is 194C TDS calculated with GST or without GST?
When GST is shown separately on the invoice, TDS is calculated on the amount before GST.
Does 194C still apply after 1 April 2026?
The same payments are now covered in the TDS table under section 393 of the Income-tax Act, 2025, with the same rates and limits. Section 194C still applies to bills of FY 2025-26.