Section 194C — TDS on Contractor Payments

What is Section 194C?

Section 194C of the Income Tax Act 1961 required any person responsible for paying a resident contractor to deduct TDS before making the payment. It covered all contracts for carrying out any work — construction, manufacturing, advertising, catering, carriage of goods, and more.

Under the Income Tax Act 2025 (effective 1 April 2026), all TDS provisions are consolidated under a single section — Section 393. The old Section 194C is retired and replaced by two codes:

• Code 1023 — Contractor payments to Individual or HUF payees. Rate: 1%.
• Code 1024 — Contractor payments to Company, Firm, or LLP payees. Rate: 2%.

Old vs New — Side-by-Side Comparison

Who Must Deduct TDS Under 194C / Code 1023/1024?

Any person (individual, HUF, firm, company, government body, co-operative society, trust) who pays a resident contractor is required to deduct TDS — with one exception: an individual or HUF whose gross receipts from business do not exceed ₹1 crore (or professional receipts ₹50 lakh) in the preceding year is exempt from deducting TDS on payments other than to sub-contractors. This exemption is preserved under the IT Act 2025.

Transactions Before 1 April 2026

Payments made under contracts executed before 1 April 2026 continue to be governed by the old Section 194C as long as the payment date is before 1 April 2026. For payments made on or after 1 April 2026 — regardless of when the contract was signed — the new codes 1023/1024 under §393 apply.

Section 536 of the IT Act 2025 preserves all assessments, TDS credits, and proceedings under the old Act for periods before 1 April 2026. Old Form 26Q TDS credits continue to appear in Form 26AS and AIS.

What Work Qualifies Under 194C?

The section applies to contracts for carrying out any work, which courts have interpreted broadly. Qualifying activities include:

• Construction, repair, and renovation contracts
• Manufacturing or supply of goods (not mere supply of existing goods)
• Advertising and publicity contracts
• Broadcasting and telecasting
• Carriage of goods or passengers by road, rail, or air
• Catering contracts
• Loading and unloading contracts

Not under 194C: Pure professional or technical service contracts (CA, doctor, lawyer, management consultant, technical advice) fall under Section 194J / Codes 1026/1027 at 2%/10%. When in doubt, look at whether the contractor is delivering a result of work (194C) or rendering a professionalservice (194J).

Frequently Asked Questions