Section 194C — TDS on Payment to Contractors and Sub-Contractors

Section 194C of the Income Tax Act requires TDS deduction on payments made to contractors and sub-contractors for carrying out any work — including advertising, broadcasting, carriage of goods, catering, manufacturing and others. TDS under Section 194C applies to all categories of payers — individuals, companies, HUFs, firms and others. Here is the complete guide.

TDS Rate — Section 194C

• For individual or HUF contractors: 1% TDS
• For other contractors (companies, firms, LLP): 2% TDS
• No TDS if PAN is not furnished: 20% TDS (Section 206AA)

Threshold Limit

• TDS applies when a single payment exceeds ₹30,000
• OR when aggregate payments to a single contractor exceed ₹1 lakh in a financial year
• Once aggregate crosses ₹1 lakh — TDS must be deducted even on past payments made below ₹30,000 per transaction (adjustment in the next payment)

What Is "Work" Under Section 194C?

• Advertising work
• Broadcasting and telecasting (including production of programs)
• Carriage of goods or passengers by rail, road, air, sea (transport)
• Catering
• Manufacturing or supplying a product as per specification (where material is supplied by the payer)
• Labour and manpower supply contracts
• Security services (guard and housekeeping contracts)

Transport Contractor — PAN Exemption

• An individual/HUF contractor engaged in plying, hiring or leasing goods carriages can furnish their PAN to the payer and claim nil TDS (Section 194C(6))
• Once PAN is furnished by the transporter: No TDS is to be deducted — even above ₹30,000 or ₹1 lakh
• The payer must still report the payment in TDS return (Form 26Q — with zero TDS)

Material + Labour — Composite Contract

• Where the contractor supplies material AND provides labour: TDS applies on the full contract value if no separate accounting is maintained
• If material and labour charges are separately shown: TDS applies only on the labour/service portion

Conclusion

Section 194C covers a wide range of contractor payments — from transport to advertising to labour supply — with differential rates for individuals and companies. SPOTON provides TDS advisory, quarterly return filing and TDS default resolution for businesses across Kerala. Contact us for expert TDS compliance services.