TDS Under Section 194C: Contractors, the Two Thresholds and the Transporter Exemption

Rates and thresholds

One per cent where the payee is an individual or Hindu undivided family, two per cent in every other case. Deduction is required where a single payment exceeds thirty thousand rupees, or where aggregate payments in the financial year exceed one lakh rupees.

Either condition triggers it. A series of twenty-five thousand rupee payments totalling one lakh and twenty thousand crosses the annual threshold even though no single payment crosses the other.

What counts as work

Advertising, broadcasting and telecasting, carriage of goods and passengers by any mode other than railways, catering, and manufacturing or supplying a product to a customer's specification using material purchased from that customer.

That last limb matters: where material is supplied by the customer, tax is deducted on the invoice value excluding the material cost, provided that cost is separately mentioned. Where it is not mentioned separately, the whole invoice value is the base.

The transporter exemption

No deduction is required from a transporter engaged in plying, hiring or leasing goods carriages who owns ten or fewer goods carriages at any time during the year and furnishes a declaration to that effect along with their PAN.

The declaration must be obtained and retained. Without it the exemption does not apply, however small the transporter's fleet actually is.

Personal payments

An individual or HUF not subject to tax audit is not required to deduct under Section 194C at all. Where they are subject to audit, they deduct only on payments for business purposes, not personal ones.

Section 194M covers the gap: individuals and HUFs not otherwise liable must deduct at five per cent on contractual or professional payments exceeding fifty lakh rupees in a year.

Frequently asked questions

### What is the TDS threshold for contractors?

Thirty thousand rupees for a single payment or one lakh rupees in aggregate during the financial year. Crossing either threshold triggers deduction on the payments concerned.

### Is TDS deducted on transport payments?

Not where the transporter owns ten or fewer goods carriages and furnishes a declaration to that effect with their PAN. Without the declaration, the normal rates of one or two per cent apply.

### Does Section 194C apply to individuals?

Only where the individual or HUF is subject to tax audit, and then only for business payments. Individuals outside audit may still be caught by Section 194M, which applies at five per cent above fifty lakh rupees a year.