The Tool Desk
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For amounts credited or paid on or before 31 March 2026, the Income Tax Department identifies section 194C of the Income Tax Act, 1961. For amounts credited or paid on or after 1 April 2026, the corresponding contractor provision is section 393(1) of the Income Tax Act, 2025. The department says the rates and monetary thresholds were retained at the transition, but the precise contractor figures must be verified in the current Act and rules before you calculate a deduction.
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What decides whether TDS is due?
The legal status of the payee is only one part of the test. Work through these questions in order:
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- What is being paid for? Identify the contract, work or service and whether it falls within the contractor-payment provision.
- Who is making the payment? Check whether the payer is covered by the relevant withholding rule and whether a special rule applies to an individual or Hindu undivided family (HUF) payer.
- Who receives the money? Classify the payee as an individual, HUF, firm, company or another statutory category.
- Have the applicable single-payment and cumulative thresholds been crossed? Add payments under the relevant contract where the law requires an aggregate test.
- When was the amount first credited or paid? The earlier of credit or payment determines the governing period.
The department’s 2026 compliance material confirms the section change, reporting transition and continuity of rates and thresholds. It does not state every contractor-specific rate, threshold or exception. For a filing decision, read the current statutory table and rules together with your facts rather than relying on a generic percentage found online.
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Individual contractor versus construction company
| Question | Individual contractor | Construction company |
|---|---|---|
| Can TDS apply? | Yes, if the payment and payer meet the contractor-withholding conditions. | Yes, if the payment and payer meet those conditions. |
| Does the payee’s legal form matter? | Yes. An individual or HUF is a distinct payee category in the applicable table. | Yes. A company is treated under the company or other non-individual category specified by the law. |
| Does the word “construction” settle the issue? | No. The contract and statutory coverage must be examined. | No. Incorporation does not remove a covered payment from TDS. |
| Exact rate and threshold | Not stated in the Income Tax Department material reviewed for this article; verify the current statutory table. | Not stated in the Income Tax Department material reviewed for this article; verify the current statutory table. |
| Possible special payer route | Specified payments by an individual or HUF payer may have used section 194M and Form 26QD before the transition. | The payer’s status, not the company’s name alone, determines the filing route. |
In practical terms, paying a sole proprietor and paying an incorporated builder can produce different category entries even when both perform the same work. It is unsafe to assume that one rate applies simply because both invoices describe construction.
Which section applies around 1 April 2026?
Credits or payments through 31 March 2026
For an amount credited or paid on or before 31 March 2026, use the Income Tax Act, 1961 framework. The department’s contractor examples identify section 194C. The relevant event is the earlier of the credit to the contractor’s account or the actual payment.
Credits or payments from 1 April 2026
For an amount credited or paid on or after 1 April 2026, use the Income Tax Act, 2025 provisions. The department identifies section 393(1) and its table-based contractor entry; an example of a company paying a contractor uses section 393(1), Table 6(i). A post-transition statement that continues to use the old section number can create processing errors, so update your accounting and return software.
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What if one contract spans the transition?
Do not choose one section for the entire contract merely because the agreement was signed earlier. Test each credit or payment using its earlier event date. The department’s example applies section 194C to an amount credited on 31 March 2026 and section 393(1), Table 6(i), to an amount credited in April 2026. It also says that the contract itself does not need to be amended solely because the new Act took effect.
How to check a payment before withholding
- Read the scope of the contract. Record whether the invoice is for contracted work, labour, materials supplied with work, or another service. Do not rely only on a label such as “civil work.”
- Identify the payer. Note whether the payer is a company, firm, government body, trust, professional business or an individual/HUF. The payer category can determine whether the contractor provision applies and whether a special statement route is available.
- Verify the payee’s legal identity. Obtain the contractor’s PAN and legal name. Decide whether the payee is an individual, HUF, firm, company or another entity. A sole proprietor may invoice under a trade name while remaining an individual for tax classification; confirm the PAN record instead of guessing from the invoice heading.
- Review the threshold test. Check both the amount of the current bill and the cumulative amount paid or credited under the relevant contract. The exact figures are date- and table-sensitive and are not stated in the department FAQ material summarized here.
- Mark the earlier event date. Compare the date the amount was credited with the date it was paid. Use 31 March 2026 as the final old-Act date and 1 April 2026 as the first new-Act date.
- Select the section and reporting form for that period. Use section 194C for the old-Act period, or the applicable section 393(1) table entry for the new-Act period. If a specified individual/HUF payment falls under the old section 194M route, use Form 26QD; for specified post-transition challan-cum-statement transactions, the department identifies Form 141.
- Document the decision. Keep the contract, invoice, PAN, payment ledger, threshold calculation, credit date and section used. This record explains why you withheld—or why no deduction was required—if the transaction is later reviewed.
Rates and thresholds: why you should not copy a percentage
The Income Tax Department states that “The TDS rates and monetary thresholds for all categories of payments have been retained as they are under the Income Tax Act, 1961.” That statement means the transition itself did not change those amounts. It does not eliminate the need to check which payee category, contract type and payer rule applies.
The material available for this article does not provide the contractor-specific rate or threshold figures. Consequently, no numerical percentage is given here. Before deducting, consult the current text of section 194C or the applicable section 393(1) table, together with the 2026 rules and any currently effective notification. A rate copied from an old invoice, accounting template or unrelated professional-payment rule can be wrong even when the work is genuine construction.
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Forms and deposit deadlines
Old-Act specified individual/HUF payments
The department identifies Form 26QD for specified payments by individuals or HUFs to contractors and professionals under section 194M before the transition. This is not a universal form for every household renovation bill: first confirm that the payer, payee and payment satisfy the specified rule.
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For specified challan-cum-statement transactions under the new Act, the department identifies Form 141. Use the form associated with the period and transaction type shown in the current portal instructions; do not substitute Form 26QD merely because the contractor is an individual.
When must the tax be deposited?
The department’s payment FAQ says the old-Act general deadline was the seventh day of the following month. For deductions made in March by a non-government deductor, the deadline was 30 April. Specified challan-cum-statement transactions followed a 30-day-after-month-end rule. The department says Rule 218 of the Income Tax Rules, 2026 retains the corresponding timelines. Confirm the applicable route before scheduling the payment, because the special 30-day rule does not automatically replace the general seventh-day deadline for every contractor deduction.
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Worked date examples
Invoice credited on 31 March and paid in April
If the amount was credited on 31 March 2026 and the bank payment occurred in April, the earlier event is 31 March. The old-Act treatment therefore applies, even though cash left the bank after 1 April.
Invoice first credited in April 2026
If no credit occurred in March and the first credit and payment happen in April 2026, use the new-Act contractor entry under section 393(1), including the applicable table category. Record the April date in the ledger and use the corresponding reporting section.
Several bills under one construction contract
Maintain a cumulative schedule rather than checking each invoice in isolation. A bill below a single-payment threshold can still require review when earlier bills under the same contract bring the aggregate above the applicable limit. Because the actual figures are not supplied in the department material summarized here, calculate with the current statutory threshold rather than an assumed amount.
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Common mistakes and how to correct them
- “It is an individual, so no TDS applies.” Individual status does not create a blanket exemption. Re-run the payer, contract and threshold tests.
- “It is a company, so the rate is automatically different.” The company category matters, but the payment type and payer coverage still have to be established.
- Using section 194C after 1 April 2026. Update the section reference to the relevant section 393(1) table item for a new-period credit or payment.
- Using the payment date alone. The governing event is the earlier of credit or payment, so a March credit followed by an April payment remains an old-Act transaction.
- Ignoring cumulative payments. Keep a contract-level ledger and test the aggregate where the statute requires it.
- Choosing a form by habit. Form 26QD and Form 141 belong to specified routes and periods. Match the form to the payer, payee, transaction and date.
- Changing the contract unnecessarily. A contract does not need amendment solely because the new Act replaced the old section numbering; correct the accounting and reporting references instead.
A practical checklist for a building or renovation payment
- Contract and invoice describe the actual work and consideration.
- Payer’s legal status and business context are recorded.
- Contractor’s PAN and legal category are verified.
- Single and cumulative amounts are checked against the current statutory table.
- Credit date and payment date are compared.
- Section 194C or the appropriate section 393(1) table item is selected for that date.
- Any specified individual/HUF route is tested before choosing Form 26QD or Form 141.
- Deposit and statement deadlines are placed on a compliance calendar.
- Supporting documents and the reason for the decision are retained.
When professional advice is warranted
Obtain transaction-specific tax advice when a contract combines labour and materials in an unusual way, several entities are paid under one project, the payer is an individual or HUF with substantial payments, the contractor’s PAN or legal status is unclear, or credits straddle 31 March and 1 April 2026. The transition rules are clear about the dates and section references, but the final result still depends on the exact statutory category and facts.
Bottom line
TDS is not determined by whether a contractor is an individual or a construction company alone. Both can fall within the contractor-withholding rules. Classify the payment and both parties, test the applicable thresholds, use the earlier credit-or-payment date, and report under section 194C for the period through 31 March 2026 or the applicable section 393(1) table entry from 1 April 2026. Verify the current rate and threshold before making the deduction because those figures are not set out in the official material summarized here.
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