Section 194C requires TDS deduction on payments made to contractors and sub-contractors for carrying out any work including supply of labour.

WHO MUST DEDUCT
Any person making payment to a contractor must deduct TDS under 194C. However, individuals and HUFs are required to deduct only if their total sales, gross receipts, or turnover exceeded the limits specified under Section 44AB (tax audit) during the preceding financial year. Payments made exclusively for personal purposes by individuals and HUFs are not covered.

TDS RATES
1% when the payee is an individual or HUF.
2% when the payee is any other person (company, firm, AOP, etc.).

THRESHOLD
No TDS is required if:
- A single payment does not exceed Rs 30,000, AND
- The aggregate of all payments to the same contractor during the financial year does not exceed Rs 1,00,000.

Once either threshold is crossed, TDS must be deducted.

WHAT CONSTITUTES A CONTRACT
Section 194C covers any contract for carrying out work. This includes manufacturing, processing, construction, erection, installation, repair, and supply of labour. It does not cover contracts for sale of goods. The distinction between a works contract and a sale contract is important and often disputed.

TRANSPORTER EXEMPTION
Under Section 194C(6), no TDS is required on payments to a transporter engaged in the business of plying, hiring, or leasing goods carriages, provided the transporter furnishes a PAN and also furnishes a declaration that they did not own more than ten goods carriages at any time during the previous year.

TDS DEPOSIT TIMELINE
TDS must be deposited by the 7th of the month following the month of deduction. For deductions in March, the due date is 30th April.

PRACTICAL TIP
Maintain a running total of payments to each contractor through the year. Many businesses miss the Rs 1 lakh aggregate threshold because individual payments were below Rs 30,000 each.