When is TDS deducted on a contractor?
When a payer deducts tax on a contractor or sub-contractor, the ₹30,000 / ₹1,00,000 thresholds, how the Income-tax Act, 2025 moves 194C into section 393(1) table sl. no. 6(i), and why quoting the old section on an April return fails processing.
In this guide
A specified payer deducts tax on a contractor payment under section 194C if the earlier of credit or payment is on or before 31 March 2026. From 1 April 2026 that payment sits in section 393(1) table sl. no. 6(i). Rates and the ₹30,000 / ₹1,00,000 thresholds did not change. Quote the new table row on the April return or the statement can fail processing. Confirm on the official TDS Compliance FAQ.
What does section 194C cover?
Section 194C is tax on a payment to a resident contractor for carrying out any work, including supply of labour. A sub-contractor sits in the same provision. It is not the section for professional fees, and it is not the section an unaudited individual uses for a one-off contractor.
The official FAQ's own example is a monthly housekeeping contract. That is the right mental picture: a specified payer, a resident contractor, a recurring invoice. Advertising, catering, loading, and a works contract for a building are the same family. A CA's invoice is not.
| Earlier of credit or payment | Governing provision |
|---|---|
| On or before 31 March 2026 | Section 194C of the Income-tax Act, 1961 |
| On or after 1 April 2026 | Section 393(1) table sl. no. 6(i) of the Income-tax Act, 2025 |
Which Act governs a contractor payment?
Contractor TDS is not salary TDS. Salary waits for payment. Contractor tax is triggered on the earlier of credit or payment. Question 1 of the official FAQ is written on that rule, and the professional-fees example there is the same trigger you use for 194C.
Work done in March and credited on 31 March is a 194C deduction, even if you pay in April. An advance paid on 28 March is also 194C, even if you book the invoice in April. The FAQ says you do not need to amend the contract because the new Act starts. You only change the section code on the line.
Deposit March tax by 30 April. Paying it in May because the 2025 Act has started is not a defence. Interest is 1.5 per cent a month from the date of deduction. See TDS payment due dates and the Form 26Q map.
Does paying a March contractor bill in April move it to 393?
No. The earlier of credit or payment decides. A 31 March credit stays on section 194C even if the cheque clears in April. Only an April credit or an April payment with no earlier credit moves to sl. no. 6(i).
What are the 194C thresholds and rates?
The official FAQ, question 3, says TDS rates and monetary thresholds were retained. Section 393 is a table, not a rate change.
The department's own threshold note for 194C is the pair you already use: no deduction if a single payment does not exceed ₹30,000, and no deduction if the aggregate in the financial year does not exceed ₹1,00,000. Cross either line and the whole sum is in. The FAQ says that pair continues under sl. no. 6(i).
The rate still depends on who the contractor is. An individual or HUF contractor is deducted at 1 per cent. Any other resident contractor is deducted at 2 per cent. Do not invent a third rate because the section number changed.
If you do not deduct, or you deduct and do not deposit by the return due date, section 35(b)of the 2025 Act disallows 30 per cent of the sum while computing business income. The FAQ's own numbers: ₹5 lakh of professional fees unpaid as TDS becomes a ₹1.5 lakh disallowance. The same arithmetic applies to a contractor line.
Is 194C 1 per cent or 2 per cent?
Both, by who the contractor is. An individual or HUF contractor is 1 per cent under section 194C. Any other resident contractor is 2 per cent. The Income-tax Act, 2025 keeps that split in sl. no. 6(i).
When does a payer use section 194M?
An individual or HUF who is not required to get accounts audited does not use 194C. That payer, above the 194M threshold, uses section 194M until 31 March 2026 and section 393(1) table sl. no. 6(ii) from 1 April 2026. The vehicle is Form 26QD, then Form 141. It is not Form 26Q.
Putting a 194M payment on 26Q, or a 194C payment on 26QD, is how a correction statement starts. The official FAQ, question 9, keeps those four challan-cum-statements in their own box for a reason.
How do I confirm a 194C deduction?
- Read questions 1 to 5 and question 9 on the official TDS Compliance FAQ. Question 2 is the housekeeping-contract cutover.
- Open section 393 and find table sl. no. 6(i) for payments from April 2026.
- File the 26Q or Form 141 only through the e-Filing TDS path / TRACES.
Match the contractor's credit against 26AS and AIS for AY 2026-27, and against Form 168 for tax year 2026-27.
Where do contractor TDS codes get updated?
The sl. no. 6(i) mapping is already in the department's TDS Compliance FAQ. What still moves is the return utility or a correction to that table row. CBDT updates on Complied AI keep those next to section 393 so accounts is not quoting 194C on an October 2026 26Q.
Practical checks
Common questions
Which section replaces 194C from 1 April 2026?
Section 393(1), table sl. no. 6(i) of the Income-tax Act, 2025. The official TDS Compliance FAQ uses a monthly housekeeping contract as the example: March 2026 credited on 31 March stays on 194C; April 2026 credited on 30 April moves to sl. no. 6(i). Rates and thresholds stay the same.
What is the TDS threshold for a contractor payment under 194C?
No deduction under section 194C if a single payment does not exceed ₹30,000 and the aggregate in the financial year does not exceed ₹1,00,000. That pair is the official threshold note for 194C. The 2025 Act FAQ says monetary thresholds were retained, so the same pair applies to sl. no. 6(i).
A contractor invoice was credited in March and paid in April. Which Act applies?
The 1961 Act. Question 1 of the official FAQ is written on that fact pattern. The earlier event is the March credit, so you deduct in March under section 194C. Paying in April does not move the line into section 393.
What happens if I quote 194C on a payment made after 1 April 2026?
The FAQ says the rate and threshold are unchanged, but the old section number on a new-year return can force a correction statement. Update the ERP section code to sl. no. 6(i) before the first April 26Q, not after TRACES rejects the file.
Is a CA invoice deducted under 194C?
No. Section 194C is a works contract, supply of labour, housekeeping, catering or a building contract. A chartered accountant, advocate or consultant is professional fees at a different rate and a different table row. Putting a CA on 194C is how a correction statement starts.
I am an unaudited individual paying a painter ₹2 lakh. Is that 194C?
No. An individual or HUF not required to get accounts audited does not use section 194C. Above the 194M line that payer uses section 194M until 31 March 2026 and section 393(1) table sl. no. 6(ii) from 1 April 2026, on Form 26QD then Form 141, not Form 26Q.
What if I deduct 194C but never deposit it?
Section 35(b) of the Income-tax Act, 2025 disallows 30 per cent of the sum while computing business income if you do not deduct, or you deduct and do not deposit by the return due date. On ₹5 lakh that is a ₹1.5 lakh disallowance, on top of section 201(1A) interest.
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How this guide was prepared
This guide is published by the Complied AI research desk. Its source list and stated position were checked against the official records shown below on 17 August 2026.
Automation, including AI, may assist research, drafting and structure. It does not replace the official record or amount to an independent professional review. Read our editorial standards and corrections policy.
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