Section 194C — TDS on Contractor Payments (New: Code 1023/1024) | RushTax

Individual / HUF contractor

Other than Individual / HUF

₹30,000

Any such sum

₹1 lakh

Aggregate of such sums

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 is Individual or HUF. Rate: 1%.
Code 1024 — Contractor is a person other than Individual or HUF. Rate: 2%.

Old vs New — Side-by-Side Comparison

Aspect	IT Act 1961 (before 1 April 2026)	IT Act 2025 (from 1 April 2026) →
Section	194C	§393(1) 6(i) — Code 1023 / 1024
Rate (Individual/HUF contractor)	1%	1% — 1023
Rate (other contractor)	2%	2% — 1024
Any such sum	₹30,000	₹30,000
Aggregate of such sums	During the financial year	₹1,00,000 during the tax year (s.393(1))
TAN required	Yes	Yes — unchanged
Form for filing	Form 26Q (quarterly)	Form 140 (26Q equivalent)

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).

If ignored

If TDS is not deducted under Section 194C (or Codes 1023/1024), the entire payment to the contractor is disallowed as a business expense under Section 40(a)(ia) of the IT Act — effectively increasing your taxable profit by the amount paid. Additionally, interest at 1% per month (from due date of deduction to actual deduction) and 1.5% per month (from deduction to deposit) applies under Section 201(1A) / §400.

Frequently Asked Questions

What is Code 1023 and Code 1024 under Section 393 of IT Act 2025?▾

Code 1023 is the TDSMAN return code for works-contract payments where the contractor is Individual or HUF — rate 1%. Code 1024 is the same nature of payment where the contractor is a person other than Individual or HUF — rate 2%. Both sit under §393(1) Table Sl. No. 6(i). Threshold on the TY 2026-27 chart: ₹30,000 for any such sum, and ₹1,00,000 in case of aggregate of such sums. Old section: 194C.

Does the TDS rate change for contractor payments from 1 April 2026?▾

The TY 2026-27 TDSMAN chart prints 1% for 1023 (contractor is Individual or HUF) and 2% for 1024 (contractor is a person other than Individual or HUF). Threshold: (a) ₹30,000 for any such sum; and (b) ₹1,00,000 in case of aggregate of such sums.

What is the threshold for TDS under Section 194C / Code 1023/1024?▾

The TY 2026-27 chart prints two limits for 1023 and 1024: (a) ₹30,000 for any such sum; and (b) ₹1,00,000 in case of aggregate of such sums. The chart does not print a ₹75,000 figure. Section 393(1) of the Income-tax Act, 2025 measures that aggregate on sums credited or paid during the tax year.

What happens to ongoing contracts signed before 1 April 2026?▾

Payments made before 1 April 2026 are governed by old Section 194C (regardless of when the contract was signed). Payments made on or after 1 April 2026 use the new codes 1023/1024 under §393, even if the contract predates the new Act. The TAN requirement and deposit/filing obligations are unchanged.

What type of work qualifies as 'contractor' for TDS under 194C/1023/1024?▾

Section 194C (and its successor codes 1023/1024) applies to any payment under a contract for 'carrying out any work' — this includes construction, manufacturing, processing, loading/unloading, excavation, advertising, broadcasting, carriage of goods or passengers by any mode, catering, and other specified activities. Pure service contracts (professional advisory, consulting) generally fall under Section 194J / Codes 1026/1027, not 194C.