4 days ago
When TDS Applies to Contractor Payments Under Income-tax Act 2025
If you pay someone to do contracted work, you may need to set aside some of the payment as tax.
The rules described here apply to payments made from 1 April 2026.
Companies and other designated payers generally deduct 1% when the contractor is an individual or HUF, and 2% for other contractors.
A designated payer does not deduct tax on a single payment of ₹30,000 or less, but the rule can apply when payments to that contractor add up to more than ₹1 lakh in a year.
An individual or HUF who pays a contractor must deduct 2% if covered payments exceed ₹50 lakh in the year.
The deduction is made when the amount is first recorded or paid.
The payer sends the deducted amount to the government.
The contractor can claim credit for that tax when filing an income tax return.
For payments made from 1 April 2026, contractor-payment TDS is governed by Section 393(1) of the Income-tax Act, 2025.
Designated persons must deduct TDS at 1% for resident individual or HUF contractors and 2% for other resident contractors.
For designated persons, no TDS is required on a single payment of ₹30,000 or less, but the obligation applies if annual payments to the contractor exceed ₹1 lakh.
An individual or HUF payer must deduct TDS at 2% if payments covered by the provision exceed ₹50 lakh in a tax year.
TDS is deducted when the amount is recorded in the payer’s books or paid, whichever happens first; the contractor can claim credit when filing an income tax return.
- Who
- People and entities paying resident contractors for work under a contract, including designated persons and individuals or HUFs meeting the stated threshold.
- What
- Rules on when TDS must be deducted from contractor payments and the applicable rates.
- Where
- Under India's Income-tax Act, 2025.
- When
- For payments made on or after 1 April 2026.
- Why
- To explain when payers must deduct and deposit tax on contractor payments.
Key facts
- Applicable provision
- Section 393(1) of the Income-tax Act, 2025
- Effective date
- Payments made on or after 1 April 2026
- Rate for individual or HUF contractor
- 1% for designated payers
- Rate for other contractor
- 2% for designated payers
- Designated-payer thresholds
- No TDS on a single payment of ₹30,000 or less; TDS applies if aggregate annual payments to the contractor exceed ₹1 lakh.
- Individual or HUF payer threshold
- TDS at 2% applies if covered payments exceed ₹50 lakh during the tax year.
- Deduction timing
- When the amount is recorded in the payer's books or paid, whichever happens first.
Sources
Related news
Why Tenants Must Deduct TDS on High-Value Residential Rent
Form 141 Consolidates TDS Reporting Under Income Tax Act 2025
Advance Tax Deadline: When Salaried Indians Must Pay More
New Income Tax Act Changes Checks for Salaried Taxpayers
Property Purchases From NRIs Face Separate TDS Filing
TDS and TCS Statements Can Now Be Filed Directly Through TRACES
Jason Derulo Adds Mumbai and Delhi Shows to India Tour
Indian Markets Open Higher as IT Shares Surge
Amazon and Flipkart Launch Festive Sales With Smartphone Deals
India IPO Fundraising Hits Record $12.5 Billion Through September
UK Contactless eGates Begin Rollout, but Exclude Indian Passport Holders
