# TDS on Payments to Contractors / Sub-Contractors - Section 194C

## Who Must Deduct?

Any person (other than individual/HUF whose business turnover ≤ ₹1 crore or profession receipts ≤ ₹50 lakh in preceding PY) responsible for paying any sum to a resident contractor/sub-contractor for carrying out any work.

## Rates of TDS

Payee	Rate
Individual or HUF	1%
Any other person (firm, company, etc.)	2%

## Timing of Deduction

Tax is to be deducted at the earlier of:

Time of credit of the sum to the payee's account, OR
Time of actual payment

## Threshold Limits (Combined Test)

No TDS if:

Single payment/credit ≤ ₹30,000, AND
Aggregate of payments/credits during financial year ≤ ₹1,00,000

If either threshold is crossed, TDS applies on the entire amount (not just the excess).

⚠️ Common exam mistakes

Applying 2% to individual sub-contractor payments instead of the 1% rate.
Deducting TDS only on the excess over the threshold — TDS is on the entire amount once threshold breached.
Forgetting that the threshold is a TWIN test (single ₹30,000 AND aggregate ₹1,00,000) — breach of either triggers TDS.

Bare-Act text 194C · Income-tax Act, 1961 · click to expand

Provisions of tax deduction at source under section 194C are attracted in respect of payment by a company to a sub-contractor. Under section 194C, tax is deductible at the time of credit or payment, whichever is earlier @1% in case the payment is made to an individual.

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Section 194C - TDS on Payments to Sub-Contractors

Worked example

⚠️ Common exam mistakes