Section 194C is the provision most construction, manufacturing and event businesses deal with every month, and the one where the aggregate threshold catches people who were watching only the single-payment limit.
The two thresholds
| Trigger | Threshold |
|---|---|
| Any single payment or credit | ₹30,000 |
| Aggregate of all payments in the financial year | ₹1,00,000 |
These operate independently. Ten payments of ₹25,000 each never breach the single-payment limit, but they total ₹2,50,000 and therefore breach the annual aggregate, at which point TDS applies to the whole amount, not just the excess. This is the mistake that produces most 194C demands.
The rates
| Payee | Rate |
|---|---|
| Individual or HUF contractor | 1% |
| Any other person: company, firm, LLP, co-operative society | 2% |
| Payee has not furnished PAN | 20%, under Section 206AA |
The transporter exemption
No TDS is deductible on payments to a transporter engaged in plying, hiring or leasing goods carriages, provided the transporter 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 is the condition, not the fact. Without it on file, the exemption is not available to you as the deductor, however few vehicles the transporter actually owns. Collect it at the start of the year and keep it with the ledger.
What counts as work
- Advertising, and broadcasting or telecasting including production of programmes
- Carriage of goods or passengers by any mode other than railways
- Catering
- Manufacturing or supplying a product to a customer's specification using material purchased from that customer
That last limb is the one people miss. If you supply the raw material and the contractor fabricates to your specification, it is a works contract under 194C. If the contractor buys their own material and sells you a finished product, it is a sale, and 194C does not apply.
When it must reach the government
| Deduction month | Deposit due by |
|---|---|
| April to February | 7th of the following month |
| March | 30 April |
Quarterly returns in Form 26Q follow, and Form 16A certificates are issued to the deductee from the return. Late deposit attracts interest at 1.5% per month from the date of deduction, and a late return attracts ₹200 per day under Section 234E until filed.
The cost of getting it wrong
- Interest at 1% per month for failure to deduct, and 1.5% per month for deducting but not depositing
- 30% of the expense disallowed under Section 40(a)(ia), which converts a cash-flow problem into a tax problem
- ₹200 per day under Section 234E for a late quarterly return, capped at the TDS amount
- Penalty under Section 271H, between ₹10,000 and ₹1,00,000, for a return not filed within a year
Practical position for a construction firm
Multi-party billing makes 194C harder than it looks. Sub-contractors, labour suppliers and equipment hirers may each cross the aggregate threshold separately, and the aggregate is computed per payee across the whole year, not per project. A ledger organised by project rather than by payee will not tell you when a threshold has been crossed.
Questions About TDS On Contractor Payments
Statutory figures on this page verified 11 August 2026.