# Section 194C - TDS on Payments to Contractors
## Who Deducts (Deductor)
- Central / State Government
- Local Authority
- Central / State / Provincial Corporation
- Company, firm, trust
- Registered society, co-operative society
- University established under Central/State/Provincial Act or declared under UGC Act
- Government of Foreign State or a foreign enterprise
- Individual / HUF / AOP / BOI whose total sales, gross receipts or turnover > ₹ 1 crore (business) OR > ₹ 50 lakhs (profession) during the immediately preceding F.Y.
## On What (Nature of Payment)
Payment to a resident contractor for carrying out any work (including supply of labour).
## Threshold
TDS applies if either:
- Single sum credited / paid > ₹ 30,000, OR
- Aggregate of sums credited / paid during the F.Y. > ₹ 1,00,000.
## Rate of TDS
| Payee | Rate |
|---|---|
| Individual / HUF | 1% of sum paid or credited |
| Any other person | 2% of sum paid or credited |
## When to Deduct
At the time of credit of such sum to the account of the contractor or at the time of payment, whichever is earlier.
## Important Carve-outs
### (a) No TDS for personal purposes
Individual / HUF need not deduct tax where the sum is credited / paid exclusively for personal purposes.
### (b) Transporter exemption
No TDS on payments to a transporter who:
1. Is engaged in business of plying, hiring or leasing goods carriages;
2. Owns ≤ 10 goods carriages at any time during the P.Y.;
3. Furnishes a declaration along with PAN to the deductor.
This relaxation applies only to transport charges (whether paid by a transport business or otherwise).
### (c) Professional services excluded
Contracts for rendering professional services by lawyers, physicians, surgeons, engineers, accountants, architects, consultants etc. are NOT 'work' under 194C. Such payments fall under section 194J.
## Definition of 'Work' [Section 194C(7) - Explanation]
'Work' includes:
- (a) Advertising
- (b) Broadcasting & telecasting (including production of programmes)
- (c) Carriage of goods or passengers by any mode other than railways
- (d) Catering
- (e) Manufacturing or supplying a product per customer's specification using material purchased from such customer or its associate (associate = person related to customer under section 40A(2)(b))
### What is NOT 'work'
Manufacturing / supplying a product per customer's specification using raw material purchased from a third party (not the customer) — this is a contract for sale, not contract for work.
## Special Rule for Material in Invoice
Where 'work' involves manufacturing using material from the customer / associate:
- If material value is mentioned separately in invoice → TDS only on invoice value excluding material.
- If material value is NOT separately shown → TDS on the whole invoice value.