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Repair Windows errors before they cause bigger problemsFix Now →Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →There is no single TDS rate for every contractor payment. The result depends on the date of the earlier credit or payment, the type of service or contract, whether the payee is resident, whether a valid PAN is available and operative, and whether the payee holds a lower- or nil-deduction certificate covering that receipt. For a credit or payment on or after 1 April 2026, use the applicable table entry under section 393 of the Income Tax Act, 2025. For an event on or before 31 March 2026, apply the Income Tax Act, 1961.
The official guidance does not establish one universal percentage for all contractor categories. Do not copy a generic rate from an old example: classify the transaction and payee first, then verify the operative statutory table for the event date.
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Start with the date that creates the TDS obligation
Contractor TDS is generally triggered at the earlier of credit or payment. That timing rule decides which income-tax law and reporting reference you use.
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A free scan shows the junk files, broken settings and background clutter dragging Windows down - then fixes them in one click.Free scan · Windows 10 & 11| When the amount is credited or paid | Governing framework | What to report |
|---|---|---|
| On or before 31 March 2026 | Income Tax Act, 1961 | Use the applicable provision and rate under the 1961 Act. |
| On or after 1 April 2026 | Income Tax Act, 2025 | Use the relevant item in the section 393 table. The department’s contractor example uses section 393(1), Table Sl. No. 6(i). |
A payment made in April does not automatically create a new TDS event if the amount was already credited and tax was deducted in March. For example, if a contractor’s bill was credited on 31 March 2026 and paid in April, the old Act applies to the credit. Once tax was deducted on that credit, do not deduct again merely because cash moved later.
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For a contract that spans both months, split your review by each credit or payment event. Record the date, amount, payee, section used, rate, certificate details and challan or return reference so that an auditor can see why the old or new law was selected.
Why the contractor’s category matters more than a memorised rate
The department’s Form 141 guidance does not present one universal contractor percentage. Before selecting a rate, establish all of the following:
- Transaction nature: identify what was supplied and whether it falls within the relevant contractor-payment table item.
- Payee residence: determine whether the deductee is resident for the applicable withholding rule. Residence can change the provision that applies.
- Event date: use the earlier credit-or-payment date, not simply the invoice date or the date you run payroll.
- PAN status: confirm that the PAN has been furnished and is operative in the tax system.
- Certificate status: check whether a lower- or nil-deduction certificate exists, names this payee, covers the relevant receipts and remains valid for the event.
The exact percentage must be read from the governing law and table for that combination. The available official material confirms the decision rules but does not state every contractor-rate percentage, so quoting a single number without the classification can mislead the payer.
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What changes when the contractor has no PAN
Missing PAN can trigger a higher deduction under section 397(2) of the Income Tax Act, 2025. The Form 141 interface is designed to auto-populate the higher-rate treatment when PAN is unavailable, and the notified rules separately identify higher deduction for non-furnishing of PAN.
Do not treat “no PAN” as a rate you can estimate from a prior year’s contractor invoice. The operative percentage, exceptions and treatment of an inoperative PAN must be checked against the law and the payee’s facts for the relevant date. Keep evidence of the PAN search or validation result and the date on which it was checked.
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Use the PAN rule and certificate rule separately
A lower- or nil-deduction certificate is issued through a statutory process. It is not the same thing as a self-declaration that the contractor has no PAN, and it is not automatically replaced by a missing-PAN adjustment. Review the certificate’s stated rate, validity period, covered payer or receipts and the payee identity. If PAN is absent or inoperative, obtain professional advice on how the higher-rate provision interacts with the certificate under the operative rules rather than assuming one document cancels the other.
How a lower- or nil-deduction certificate works
A certificate allows tax to be deducted below the ordinary prescribed rate, or at nil, when the payee’s estimated total income justifies that treatment. The contractor applies to the Assessing Officer, who considers the estimated income and tax liability and issues a certificate specifying the permitted rate and its validity.
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|---|---|
| Legal provision | Section 197 of the Income Tax Act, 1961 for the old framework; section 395(1) of the Income Tax Act, 2025 for the new framework. |
| Application form for tax year 2026–27 | Form 128 under the Income Tax Rules, 2026. |
| Operational route | The department says the process will run through TRACES or the e-filing portal, similar to the existing process. |
| Rate | Use the rate printed on the certificate, not a rate inferred from the contractor’s request. |
| Validity | Confirm the start and end dates and that the specific credit or payment falls inside them. |
| Scope | Check the named payee, payer and projected receivables or transaction category covered. |
When a nil certificate means zero deduction
“Nil deduction” means the certificate authorises deduction at zero for the covered payments during its validity. It does not mean every payment to that contractor is tax-free. A payment outside the certificate’s period, amount, payer, payee identity or stated scope must be reviewed under the normal rule.
When a lower certificate means a reduced rate
A lower certificate may specify a rate such as a reduced percentage or another rate determined by the Assessing Officer. Deduct exactly what the certificate states, subject to the certificate’s conditions. Do not round the result in a way that changes the authorised treatment, and retain the certificate with the payment records.
Can a section 197 certificate continue after 1 April 2026?
The department states that a section 197 certificate issued under the Income Tax Act, 1961 may continue for credits or payments from 1 April 2026 when it covers projected receivables for tax year 2026–27. This is a transition condition, not a blanket carry-forward of every old certificate.
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- Read the certificate’s tax year or projected-receivables wording.
- Confirm that tax year 2026–27 is covered.
- Match the certificate number, payee and payer details to the current payment.
- Check the stated rate and the beginning and ending validity dates.
- Confirm that the payment is within the certificate’s monetary or transaction scope.
- Use the 2025 Act reporting reference for the post-1 April 2026 event, while retaining the old certificate as the authority for the reduced or nil rate.
If any of these checks fail, do not assume the old certificate survives. Apply the current rule or obtain an updated certificate.
Which section should be used after 1 April 2026?
For a contractor payment on 5 April 2026, the department’s example directs the deductor to section 393(1), Table Sl. No. 6(i), rather than old section 194C. This is both a legal and a filing issue: citing an old section number for a post-1 April 2026 transaction can cause validation errors.
Use the table entry that matches the actual payment and payee. Do not select section 393 merely because the invoice says “contractor”; the transaction classification and deductee residence still have to be established.
Worked timing examples
Bill credited on 31 March, paid on 10 April
The credit on 31 March 2026 is the earlier event. Apply the 1961 Act, deduct at the applicable old-law rate or the valid certificate rate, and report that event under the old framework. No second deduction is made on 10 April solely because the cheque or bank transfer occurred then.
Bill first credited on 5 April
The first event is after the transition date. Apply the 2025 Act, select the relevant section 393 table item and evaluate PAN and certificate status as they stand for that payment.
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Certificate expires between two instalments
Use the certificate for an instalment credited within its validity. Reassess the next instalment if its credit or payment occurs after expiry; a prior nil or lower rate does not automatically continue.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Operational checklist before releasing payment
- Capture the trigger date: compare the proposed payment date with the credit date and use the earlier one.
- Choose the law: 1961 Act through 31 March 2026; 2025 Act from 1 April 2026.
- Classify the payment: document the contract, work or service and the applicable table item.
- Confirm residence: retain the payee’s status and supporting declaration or records.
- Validate PAN: record whether it was furnished and operative; do not rely on an unverified number.
- Search for a certificate: ask for the certificate number and obtain the complete certificate, not only a screenshot of the rate.
- Check scope and dates: match payee, payer, projected receipts, validity and rate to this payment.
- Calculate and document: show gross amount, authorised rate, tax deducted and net payment.
- Report the right reference: use the new section 393 table reference for post-1 April 2026 events.
- Retain evidence: keep invoices, ledger credit entry, payment proof, PAN verification, certificate and correspondence.
Common mistakes and how to correct them
Using one contractor rate for every invoice
Why it fails: transaction type, residence, PAN and certificate status can change the legal treatment.
Correction: maintain a rate worksheet for each payee and update it when the contract, PAN status or certificate changes.
Using section 194C for every payment after the transition
Why it fails: post-1 April 2026 reporting uses the relevant section 393 table item, and obsolete section numbers can trigger validation errors.
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Correction: map the payment to the 2025 Act table before filing.
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Deducting twice on a March credit paid in April
Why it fails: the earlier credit already created the obligation and tax was already withheld.
Correction: reconcile the March deduction to the April payment and do not withhold again.
Accepting an unsupported no-deduction letter
Why it fails: only the statutory certificate and its stated terms authorise lower or nil deduction for covered payments.
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1Scan for outdated or missing drivers - takes under a minute2Clear out junk files and repair common Windows errors3Fix the driver behind crashes, sound loss and screen glitchesCorrection: obtain and verify the official certificate number, rate, scope and validity.
Assuming Form 121 is a contractor exemption
The Form 121 manual describes a statutory declaration under the 2026 Rules that estimated total tax liability is nil and permits the payer not to deduct on specified payments. The cited guidance does not establish that contractor payments are among those categories. Do not use Form 121 as a contractor-payment alternative unless the governing rules expressly cover the payment.
Four fact patterns to compare
| Fact pattern | Rate decision | Evidence to retain |
|---|---|---|
| Resident contractor, operative PAN, no certificate | Apply the ordinary rate in the correct statutory table for the event date and classification. | Contract, residence details, PAN validation and classification worksheet. |
| Resident contractor, PAN unavailable | Check the higher-rate rule under section 397(2) and the operative percentage for the facts; do not guess from a generic percentage. | PAN request, validation result, notice to payee and calculation. |
| Valid lower-rate certificate | Use the certificate’s stated lower rate only for covered payments within its validity and scope. | Certificate, number, dates, covered receipts and payment mapping. |
| Valid nil-rate certificate | Deduct zero only for payments the certificate actually covers during its validity. | Complete certificate and evidence that this payment is within scope. |
What to do when the facts are unclear
Pause the payment calculation rather than choosing the most familiar rate. Ask the contractor for the missing PAN or complete certificate, verify the date of credit in the books, and document the service classification. If the payment crosses the 31 March/1 April boundary, review each event separately. If the certificate and PAN information point in different directions, obtain advice based on the exact statutory text and facts; neither a contractor’s email nor a generic self-declaration substitutes for the notified rule.
Because the 2025 Act, 2026 rules, statutory tables and portal workflows are compliance-sensitive, recheck the governing table, PAN status, certificate validity and form instructions immediately before filing each return.
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