TDS
194C TDS Limit on Contractor Payments — Individuals/HUF (1%)
TDS limit under Section 194C: deduct 1% from an individual/HUF contractor once a single contract exceeds ₹30,000 or the year's total exceeds ₹1,00,000.
Section 194C covers payments to a contractor for carrying out "work" — construction, catering, transport, advertising, broadcasting and similar contracts, including supply of labour. The rate depends on who you're paying: 1% for an individual or HUF contractor (this page), 2% for a company, firm, or any other entity.
The threshold is two-pronged, and either one on its own triggers TDS: a single contract above ₹30,000, or cumulative payments to that same contractor crossing ₹1,00,000 for the year. Track the running total even when individual invoices stay small.
From FY 2026-27, this is Section 393(1), Table 1, Sl. 6(i)(a) under the Income-tax Act, 2025, filed against payment code 1023.
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 ₹45,000.00 payment at 1%, TDS is ₹450.00 and the net payment is ₹44,550.00. A ₹45,000 payment to a freelance individual contractor for one job — since it exceeds the ₹30,000 single-contract threshold, 1% TDS applies even if this is their only invoice from you all year.
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 1% for an individual or HUF contractor and 2% for a company or firm. Below both limits, no TDS is deducted.
What if I pay a contractor several small invoices that add up?
Track the running total for the year. Even if no single invoice crosses ₹30,000, once cumulative payments to that contractor exceed ₹1,00,000 in the financial year, TDS is due on the whole year's total, including the earlier invoices. Deduct that catch-up amount from the payment that crosses the limit.
Does this apply if I'm paying a company instead of an individual?
No — payments to a company, firm, or any payee other than an individual/HUF fall under the 2% rate (Section 194C — Contractor payment (company/firm)), not this 1% rate.
Is buying raw materials from a contractor covered by this section?
No — 194C covers a work contract (labour or service, or a mix of the two), not a pure sale of goods with no service component. A straightforward goods purchase may instead fall under Section 194Q if it crosses that section's own threshold.