TDS
194C TDS Limit on Contractor Payments — Company/Firm (2%)
TDS limit under Section 194C: deduct 2% from a company or firm contractor once a single contract exceeds ₹30,000 or the year's total exceeds ₹1,00,000.
This is the same Section 194C as the individual/HUF rate, but for payments to a company, partnership firm, LLP, or any payee that isn't an individual or HUF. The threshold mechanics are identical — only the rate differs, since these payees are taxed at 2% rather than 1%.
The rule applies the same way to sub-contractors as to the main contractor — if you're paying a sub-contracted firm directly, the same threshold and rate apply to that payment.
From FY 2026-27, this is Section 393(1), Table 1, Sl. 6(i)(b) under the Income-tax Act, 2025, filed against payment code 1024.
Who is exempt, whether GST is included in the amount, and what the no-PAN rate is are in TDS on contractor payments under 194C.
Worked example
On a ₹1,50,000.00 payment at 2%, TDS is ₹3,000.00 and the net payment is ₹1,47,000.00. A ₹1,50,000 payment to a contracting firm for office renovation work: 2% TDS applies since it's well past the ₹1,00,000 aggregate threshold for that payee.
Frequently asked questions
What is the TDS limit for contractor payments under Section 194C?
₹30,000 for a single contract, or ₹1,00,000 in total to the same contractor in a financial year — crossing either threshold triggers TDS. The rate is 2% for a company, firm or LLP contractor and 1% for an individual or HUF. Below both limits, no TDS is deducted.
How is this different from the individual/HUF rate?
Same section, same threshold rules — only the rate changes based on who you're paying. Individuals and HUFs are taxed at 1%; companies, firms, and other entities at 2%.
Does the ₹1,00,000 aggregate threshold reset each financial year?
Yes — it's tested fresh each financial year against that specific contractor, not carried forward or cumulative across years.
Does this apply to a sub-contractor, not just the main contractor?
Yes — Section 194C covers payments to a sub-contractor the same way as to the main contractor, with the same rate and threshold rules.