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TDS on Contractor Payments to Individuals/HUF — Section 194C

Section 194C requires 1% TDS on payments to an individual or HUF contractor once a single contract exceeds ₹30,000, or the yearly total to that contractor exceeds ₹1,00,000. From FY 2026-27 it's Section 393(1), payment code 1023.

Rate (with PAN)1%
Rate (without PAN)20% flat (Section 206AA)
From FY 2026-27Sec. 393(1), Table 1, Sl. 6(i)(a)
Payment code1023

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.

Threshold: TDS applies if either a single contract/invoice exceeds ₹30,000, or the total paid to that one contractor across the financial year exceeds ₹1,00,000 — whichever is crossed first. Once either trigger is hit, TDS applies to the payment that crossed it.

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.

Calculate TDS for any amount →

Frequently asked questions

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, TDS applies from the point cumulative payments to that contractor exceed ₹1,00,000 in the financial year.

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.