What 194C is, in plain English
Section 194C of the Income-tax Act makes the person paying for "any work" — very much including construction and works contracts — responsible for deducting tax at source before paying the contractor, and depositing it with the government against the contractor's PAN. For the contractor it isn't a lost cost; it's tax paid in advance, visible in Form 26AS and adjustable against the year's liability. But on cash flow it bites now, because it reduces the net you receive on every running-account bill.
Not tax advice: 194C rates, thresholds and conditions are periodically revised. Verify the current position with a qualified professional before deducting or claiming.
Rates and thresholds at a glance
| Item | Typical position |
|---|---|
| Rate — payee is individual/HUF | 1% |
| Rate — payee is other (company/firm/LLP) | 2% |
| No PAN furnished | Higher rate applies |
| Trigger | Single-payment limit or FY aggregate limit crossed |
| Deposited against | Contractor's PAN (shows in Form 26AS) |
Monetary thresholds are revised from time to time — confirm the current single-transaction and annual limits with your CA.
Where it sits on the RA bill
TDS is one of the stacked deductions on a running-account bill, applied to the certified amount alongside retention and advance recovery. Order matters, and doing it by hand across many bills is where errors and mismatches with Form 26AS creep in. In RA bill software the TDS rate is set per party/work order and applied automatically each cycle, so the net payable and the TDS ledger stay consistent — see the full flow in our guide to preparing an RA bill.
Frequently asked questions
What is Section 194C TDS?
TDS the payer deducts before paying a contractor for any work, deposited against the contractor's PAN.
What is the 194C rate?
Commonly 1% (individual/HUF) or 2% (other entities); higher without PAN. Verify current rates.
What's the threshold?
A single-payment limit or an annual aggregate limit; both are revised periodically — confirm with your CA.
How does it affect an RA bill?
It's deducted from the certified amount with retention and advance recovery, reducing net payable.
Apply TDS & retention automatically
Start free — set the rate once per party and it applies on every RA bill.
Start free 6-day trial