TDS Sections 194C, 194J, 194-IB

Three TDS sections cover most service payments in India: Section 194C deducts 1-2% on contractor payments above Rs. 30,000 per contract or Rs. 1,00,000 per year. Section 194J deducts 10% on professional fees above Rs. 30,000 per year. Section 194-IB deducts 5% once a year on rent above Rs. 50,000 per month. Tax Deducted at Source (TDS) means the payer deducts a percentage of the payment before releasing it to the recipient, and deposits it with the government. The recipient claims credit for the TDS deducted when filing their ITR.

Who must deduct? Any company, firm, or individual/HUF with books of accounts who makes payments that cross the prescribed thresholds. A salaried individual paying a contractor for personal home repair is generally exempt. A business owner making the same payment is not.

Applicable to: Payments to contractors and sub-contractors for any work (construction, printing, advertising, broadcasting, transport, catering, etc.)

Threshold: Rs. 30,000 per contract OR Rs. 1,00,000 in aggregate during the year

Rate: 1% if paid to individual/HUF; 2% if paid to others

Example: You hire a carpenter for Rs. 45,000. TDS @ 1% = Rs. 450. You pay Rs. 44,550 and deposit Rs. 450 to the government.

Note: Transporters with a valid PAN who declare they own 10 or fewer trucks are exempt from 194C deduction.

Applicable to: Fees for professional services (doctors, lawyers, CAs, architects, engineers, consultants, technical services, royalties, non-compete fees)

Threshold: Rs. 30,000 per year

Rate: 10% for most professional fees; 2% for technical services

Example: You pay a CA Rs. 50,000 for audit work. TDS @ 10% = Rs. 5,000. You pay the CA Rs. 45,000 and deposit Rs. 5,000.

If a professional does not provide PAN, TDS is deducted at 20% under Section 206AA.

Applicable to: Rent paid by individuals/HUF (who are not liable for audit) to a landlord

Threshold: Monthly rent above Rs. 50,000

Rate: 5% deducted once per year (typically in March, or last month of tenancy)

Form: 26QC must be filed (Form 141 Schedule A from 1 April 2026 under Section 393(1) of the Income-tax Act, 2025) and Form 16C issued to landlord (Form 132 from 1 April 2026)

Example: You pay rent of Rs. 60,000/month. You must deduct TDS of 5% = Rs. 3,000 from one month's rent (typically March), deposit it via Form 26QC, and give the landlord Form 16C.

Note: This is a one-time annual deduction, not monthly. Most tenants (and landlords) are unaware of this and it results in interest and penalty notices.

When TDS applies, the payment receipt should reflect the net amount paid:

Examples:

"Gross amount: Rs. 50,000 | TDS deducted u/s 194J @ 10%: Rs. 5,000 | Net amount paid: Rs. 45,000"

"Total amount: Rs. 60,000 | TDS u/s 194IB @ 5%: Rs. 3,000 | Amount received: Rs. 57,000"

Showing TDS on the receipt:

1. Helps the recipient claim TDS credit in their ITR

2. Protects the payer from demands that TDS was not deducted

3. Creates an audit trail for both parties

4. Prevents disputes about gross vs. net amount agreed upon

For when PAN is mandatory on the receipt, see our Rule 114B PAN-collection guide.

If you were required to deduct TDS and did not:

1. The entire expense may be disallowed under Section 40(a)(ia), costing you the tax deduction on that expense

2. Interest at 1% per month is levied from the date TDS was due to the date it is deducted

3. Interest at 1.5% per month is levied from the date of deduction to the date of deposit

4. Penalty under Section 271C equals the amount of TDS that should have been deducted

For small businesses, the safe practice is: when in doubt about a contractor payment above Rs. 30,000, deduct 1-2% and deposit via Challan 281. The cost of deducting unnecessarily is small. The cost of not deducting when required is large.