{"id":590,"date":"2026-07-20T21:19:27","date_gmt":"2026-07-20T15:49:27","guid":{"rendered":"https:\/\/www.taxaj.com/learn\/?p=590"},"modified":"2026-09-29T10:30:13","modified_gmt":"2026-09-29T05:00:13","slug":"tds-on-contractor-payments-under-section-194c-individual-vs-company-rates-fy-2025-26","status":"publish","type":"post","link":"https:\/\/www.taxaj.com/learn\/tds-on-contractor-payments-under-section-194c-individual-vs-company-rates-fy-2025-26\/","title":{"rendered":"TDS on Contractor Payments under Section 194C \u2013 Individual vs. Company Rates (FY 2025-26)"},"content":{"rendered":"\n<h2 class=\"wp-block-heading\">Introduction<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Tax Deducted at Source (TDS) is an important compliance mechanism under the Income-tax Act, 1961. Businesses making payments to contractors and subcontractors are required to deduct TDS under&nbsp;<strong>Section 194C<\/strong>, subject to prescribed conditions and threshold limits.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">A common area of confusion is whether the TDS rate differs depending on whether the contractor is an&nbsp;<strong>individual<\/strong>,&nbsp;<strong>HUF<\/strong>,&nbsp;<strong>partnership firm<\/strong>,&nbsp;<strong>LLP<\/strong>, or&nbsp;<strong>company<\/strong>. This article explains the applicable TDS rates, threshold limits, due dates, exemptions, and compliance requirements under Section 194C.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What is Section 194C?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Section 194C of the Income-tax Act requires specified persons to deduct TDS while making payments to a&nbsp;<strong>resident contractor or subcontractor<\/strong>&nbsp;for carrying out any work, including the supply of labour.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The objective is to ensure timely collection of taxes on payments made under works contracts.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Who is Required to Deduct TDS under Section 194C?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The following persons are liable to deduct TDS:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Central Government<\/li>\n\n\n\n<li>State Government<\/li>\n\n\n\n<li>Local Authorities<\/li>\n\n\n\n<li>Companies<\/li>\n\n\n\n<li>Partnership Firms<\/li>\n\n\n\n<li>Limited Liability Partnerships (LLPs)<\/li>\n\n\n\n<li>Trusts<\/li>\n\n\n\n<li>Co-operative Societies<\/li>\n\n\n\n<li>Statutory Corporations<\/li>\n\n\n\n<li>Universities<\/li>\n\n\n\n<li>Individuals and HUFs whose business or profession was liable to tax audit under Section 44AB in the immediately preceding financial year<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Individuals and HUFs not covered under tax audit provisions are generally not required to deduct TDS under this section.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Payments Covered under Section 194C<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">TDS is applicable on payments made for:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Construction contracts<\/li>\n\n\n\n<li>Civil work contracts<\/li>\n\n\n\n<li>Labour contracts<\/li>\n\n\n\n<li>Fabrication work<\/li>\n\n\n\n<li>Repair and maintenance contracts<\/li>\n\n\n\n<li>Advertising contracts<\/li>\n\n\n\n<li>Catering services<\/li>\n\n\n\n<li>Transportation contracts (subject to specific exemptions)<\/li>\n\n\n\n<li>Manufacturing using material supplied by the customer<\/li>\n\n\n\n<li>Supply of manpower<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">TDS Rates under Section 194C<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The TDS rate depends upon the legal status of the contractor.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><tbody><tr><th>Category of Contractor<\/th><th>TDS Rate<\/th><\/tr><tr><td>Individual<\/td><td><strong>1%<\/strong><\/td><\/tr><tr><td>Hindu Undivided Family (HUF)<\/td><td><strong>1%<\/strong><\/td><\/tr><tr><td>Partnership Firm<\/td><td><strong>2%<\/strong><\/td><\/tr><tr><td>LLP<\/td><td><strong>2%<\/strong><\/td><\/tr><tr><td>Private Limited Company<\/td><td><strong>2%<\/strong><\/td><\/tr><tr><td>Public Limited Company<\/td><td><strong>2%<\/strong><\/td><\/tr><tr><td>Trust \/ Society \/ AOP<\/td><td><strong>2%<\/strong><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h3 class=\"wp-block-heading\">Summary<\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Individual &amp; HUF Contractors:<\/strong>\u00a0<strong>1% TDS<\/strong><\/li>\n\n\n\n<li><strong>Companies, Firms, LLPs &amp; Other Entities:<\/strong>\u00a0<strong>2% TDS<\/strong><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Threshold Limit for TDS Deduction<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">TDS is required only if:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>A\u00a0<strong>single payment exceeds \u20b930,000<\/strong>, or<\/li>\n\n\n\n<li>Aggregate payments to the same contractor exceed\u00a0<strong>\u20b91,00,000<\/strong>\u00a0during the financial year.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">If both conditions are not met, no TDS is required.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">When Should TDS be Deducted?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">TDS must be deducted at the earlier of:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Credit of the amount to the contractor&#8217;s account, or<\/li>\n\n\n\n<li>Actual payment (whether by cheque, bank transfer, cash, or any other mode).<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Due Date for Depositing TDS<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The deducted TDS should generally be deposited:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>On or before the 7th day of the following month<\/strong><\/li>\n\n\n\n<li>For deductions made in\u00a0<strong>March<\/strong>, on or before\u00a0<strong>30th April<\/strong><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">TDS Return Filing<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The deductor must:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>File\u00a0<strong>Quarterly TDS Return in Form 26Q<\/strong><\/li>\n\n\n\n<li>Issue\u00a0<strong>Form 16A<\/strong>\u00a0to the contractor within the prescribed timeline.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Examples<\/h2>\n\n\n\n<h2 class=\"wp-block-heading\">Example 1 \u2013 Payment to an Individual Contractor<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">ABC Pvt. Ltd. pays \u20b95,00,000 to Mr. Raj (an individual contractor).<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><tbody><tr><td>Particulars<\/td><td>Amount<\/td><\/tr><tr><td>Contract Value<\/td><td>\u20b95,00,000<\/td><\/tr><tr><td>TDS Rate<\/td><td>1%<\/td><\/tr><tr><td>TDS Amount<\/td><td>\u20b95,000<\/td><\/tr><tr><td>Net Payment<\/td><td>\u20b94,95,000<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\">Example 2 \u2013 Payment to a Company<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">XYZ Ltd. pays \u20b95,00,000 to Buildtech Construction Pvt. Ltd.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><tbody><tr><td>Particulars<\/td><td>Amount<\/td><\/tr><tr><td>Contract Value<\/td><td>\u20b95,00,000<\/td><\/tr><tr><td>TDS Rate<\/td><td>2%<\/td><\/tr><tr><td>TDS Amount<\/td><td>\u20b910,000<\/td><\/tr><tr><td>Net Payment<\/td><td>\u20b94,90,000<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\">Higher TDS in Certain Cases<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">A higher rate of TDS may apply if:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The contractor does not furnish a valid PAN.<\/li>\n\n\n\n<li>Other applicable provisions of the Income-tax Act require deduction at a higher rate.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Businesses should verify the contractor&#8217;s PAN and compliance status before making payments.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Important Exemptions<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Certain payments may not attract TDS under Section 194C, including:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Payments below the prescribed threshold limits.<\/li>\n\n\n\n<li>Certain payments to transport contractors who satisfy the prescribed conditions and furnish the required declaration and PAN.<\/li>\n\n\n\n<li>Payments that are otherwise exempt under the Income-tax Act.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Consequences of Non-Compliance<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Failure to comply with Section 194C may result in:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Interest for late deduction or late payment of TDS.<\/li>\n\n\n\n<li>Late filing fees for delayed TDS returns.<\/li>\n\n\n\n<li>Penalty under the Income-tax Act.<\/li>\n\n\n\n<li>Disallowance of eligible expenditure in specified circumstances.<\/li>\n\n\n\n<li>Prosecution in serious cases of default.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Timely compliance helps businesses avoid unnecessary litigation and financial exposure.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Best Practices for Businesses<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">To ensure proper compliance:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Verify the legal status of every contractor.<\/li>\n\n\n\n<li>Obtain PAN and KYC documents before making payments.<\/li>\n\n\n\n<li>Monitor the annual payment threshold.<\/li>\n\n\n\n<li>Deduct TDS at the correct rate.<\/li>\n\n\n\n<li>Deposit TDS within the due dates.<\/li>\n\n\n\n<li>File quarterly TDS returns accurately.<\/li>\n\n\n\n<li>Issue Form 16A within the prescribed timeline.<\/li>\n\n\n\n<li>Maintain complete records of contracts, invoices, and TDS deductions.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Conclusion<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Section 194C is one of the most commonly applicable TDS provisions for businesses making payments to contractors. While the compliance framework is straightforward, applying the correct TDS rate based on the contractor&#8217;s legal status is essential.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">As a simple rule:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Individual and HUF Contractors:<\/strong>\u00a0<strong>1% TDS<\/strong><\/li>\n\n\n\n<li><strong>Partnership Firms, LLPs, Companies, Trusts, and Other Entities:<\/strong>\u00a0<strong>2% TDS<\/strong><\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Businesses should also monitor threshold limits, comply with deposit and return filing deadlines, and maintain proper documentation to avoid interest, penalties, and disputes with the tax authorities.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Introduction Tax Deducted at Source (TDS) is an important compliance mechanism under the Income-tax Act, 1961. Businesses making payments to contractors and subcontractors are required to deduct TDS under&nbsp;Section 194C, subject to prescribed conditions and threshold limits. A common area of confusion is whether the TDS rate differs depending on whether the contractor is an&nbsp;individual,&nbsp;HUF,&nbsp;partnership&#8230;<\/p>\n","protected":false},"author":8,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_kad_post_transparent":"","_kad_post_title":"","_kad_post_layout":"","_kad_post_sidebar_id":"","_kad_post_content_style":"","_kad_post_vertical_padding":"","_kad_post_feature":"","_kad_post_feature_position":"","_kad_post_header":false,"_kad_post_footer":false,"_kad_post_classname":"","footnotes":""},"categories":[6],"tags":[33,36,29,31,37,38,32,30,34,35,28],"class_list":["post-590","post","type-post","status-publish","format-standard","hentry","category-compliances","tag-1-tds","tag-2-tds","tag-contractor-payments-india","tag-contractor-tds","tag-form-26q","tag-income-tax-act","tag-tds-compliance","tag-tds-on-contractor-payments","tag-tds-rate-company-contractor","tag-tds-rate-individual-contractor","tag-tds-under-section-194c"],"_links":{"self":[{"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/posts\/590","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/users\/8"}],"replies":[{"embeddable":true,"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/comments?post=590"}],"version-history":[{"count":2,"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/posts\/590\/revisions"}],"predecessor-version":[{"id":90605,"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/posts\/590\/revisions\/90605"}],"wp:attachment":[{"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/media?parent=590"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/categories?post=590"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.taxaj.com/learn\/wp-json\/wp\/v2\/tags?post=590"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}