The direct tax regime in India has witnessed a paradigm shift with the replacement of the Income-tax Act, 1961 by the Income-tax Act, 2025 with effect from tax year 2026-27. The Income Tax Act, 2025 aims to simply the tax laws framework by removing the redundant provisions, consolidating the provisions wherever necessary and making the language lucid and simple.
A significant structural change under the Income-tax Act, 2025 is the consolidation of numerous sections relating to Tax Deducted at Source (TDS) resulting more than 60 sections has now been consolidated to a single section i.e. section 393 other than TDS on payment of salary which is separately dealt under section 392 of the Income Tax Act, 2025.
In this article, we will be examining the TDS implications on the payments for work in pursuance of a contract, earlier covered under section 194C and 194M in the Income Tax Act, 1961 which is now dealt in S. No. 6(i) and 6(ii), under section 393 in the Income Tax Act, 2025.
S.No.6(i) and 6(ii) now deals with TDS implication in respect of the payment made in relation to carrying out any work including the supply of labour in pursuance of a contract or sub-contract which was earlier covered under section 194C and 194M, respectively.
When will liability to deduct tax arise?
Liability to deduct tax will arise upon the fulfilment of the following conditions:
1. Payment is made in carrying out the work pursuant to contract and sub-contract.
2. Payer is -
- designated person defined under section 402(11) of the Income Tax Act, 2025. Individual or HUF other than those covered in the definition of designated person.
3. Payee being a Resident person.
Rate at which TDS is required to be deducted
Rate at which tax is required to be deducted will depend upon the class of payer and payee making and receiving the payment, respectively, in pursuance to contract work, explained as below:
- 1% in case of payee being Individual or HUF
- 2% in case of other payee
- 2% in case, payer is Individual and HUF, covered in S. No. 6(ii)
Non-Applicability of TDS in respect of contractor's payment
- Value of Single contract is upto Rs.30,000.
- Value of aggregate of contract in the previous year is upto Rs.1,00,000.
- Value of contract is upto Rs. 50,00,000 in case, payment is covered under S. No. 6(ii) of the Table.
- Contract is undertaken for the personal purpose of Individual or HUF.
- Payment is made to transporter owning not more than 10 vehicles at any time in the previous year, who furnishes a declaration to this effect along with his PAN.
Definition of Work and Designated Person
Work includes:
- Advertising, broadcasting, telecasting including production of programmes for such broadcasting or telecasting;
- carriage of goods or passengers by any mode of transport other than by railways;
- catering;
- manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer or its associate, covered under section 36(3).
- supply of manpower to a person to work under his supervision, control
However, definition of work does not include:
- Manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer or associate of such customer
- Any sum referred to in section 393(1) S. No. 6(iii)
Designated Person
Designated person means:
- Central Government or any State Government or any local authority; or
- Any corporation established by or under a Central Act or State Act or
- Provincial Act; or
- any company; or any co-operative society; or
- Any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or
- Any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India; or
- Any trust; or
- Any University established or incorporated by or under a Central Act or State Act or Provincial Act and an institution declared to be a university under section 3 of the University Grants Commission Act, 1956 (3 of 1956); or
- Any Government of a foreign State or a foreign enterprise or any association or body established outside India; or
- Any firm; or
- Any person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, if such person,
- does not fall under any of the preceding sub-clauses; and
- has total sales, gross receipts or turnover from business or profession carried on by him exceeding Rs.1 crore in case of business or Rs. 50 lakhs in case of profession during the tax year immediately preceding the tax year in which such sum is credited or paid to the account of the contractor.
TDS implication in case of contract for Job work
TDS will be deducted on invoice value excluding the material purchased from customer or associate, when bifurcation of amount in respect of material and job work charges are given in the invoice.
In case no bifurcation is given, TDS will be applied on the entire amount as recorded in the invoice.
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