Section 194C.
TDS on contractor & sub-contractor payments.
Payments to contractors and sub-contractors
When it applies
Section 194C applies on any payment for carrying out work, including supply of labour. This covers construction contracts, transport contracts, manufacturing or supplying products to specifications, advertising contracts, and broadcasting/telecasting contracts. Pure sale of goods is excluded — Section 194C is for contracts to do work, not contracts to sell.
Who must deduct
Any person making the payment — Central or State Government, a local authority, a company, a co-operative society, a trust, a society, an individual or HUF if turnover in the preceding year exceeded the tax-audit threshold (currently ₹1 crore for business / ₹50 lakh for profession).
Common mistakes
- Splitting a contract into multiple invoices to stay below ₹30,000 — the aggregate ₹1,00,000 catches this.
- Applying 2% to individuals — the rate for individuals/HUF is 1%.
- Missing TDS on transporter payments where PAN was not furnished (then 20% applies).
- Confusing 194C (work contracts) with 194J (technical services) — get the substance right.
Frequently asked
Is TDS deducted on transport contractor payments?
Transporters owning less than 10 goods vehicles can furnish PAN with a declaration to avoid TDS. Without the declaration, normal 194C rates apply. With ≥10 vehicles, regular 1%/2% TDS applies regardless of declaration.
Does 194C apply to a supply contract where I just buy materials?
If the contract is purely for purchase of goods (you order, the supplier delivers their standard product), 194C does not apply. If you specify the goods and the supplier manufactures them to your specification using materials they procured, it may be a work contract and 194C kicks in.
How do I treat a sub-contractor payment?
When a contractor pays a sub-contractor, the same Section 194C rules apply — the contractor deducts TDS on payments to the sub-contractor at 1% (sub-contractor is individual/HUF) or 2% (other), subject to the same thresholds.