Last reviewed: 25 September 2026. Every business that pays a contractor for a fit-out job, a CA or lawyer for a consultation, or an agent a sales commission is running into the same three provisions without realising it — old 194C, 194J and 194H, which from 1 April 2026 sit in the Table to section 393(1) of the Income-tax Act, 2025 — and getting any one of them wrong costs more than the tax itself once interest, late fees and a section 461 (old 271H) penalty are added on. This guide sets out the current rates, thresholds and PAN rules for FY 2026-27, with worked examples for the payments MSMEs and founders actually make every month.
Transition note: TDS follows the law in force when the sum is paid or credited, whichever is earlier. Payments credited or paid up to 31 March 2026 stay under 194C/194J/194H of the 1961 Act and the old forms (26Q, 16A); payments from 1 April 2026 fall under section 393 and the new forms (Form 140, Form 131).
Not sure which rate applies to a specific payment code, or want the full 26 TDS rate table? Run it through our TDS Rate Finder for FY 2026-27 before you process the vendor payment — it is faster than checking each section by hand.
Quick-reference: which provision applies to your payment?
| Old section (1961) | New (2025 Act): s.393(1) Table | Nature of payment | Rate | Threshold (FY, unless noted) |
|---|---|---|---|---|
| 194C | S.No. 6(i) | Contract work – fit-out, manpower supply, AMC, printing, transport, catering | 1% (Ind/HUF) · 2% (others) | ₹30,000 single bill or ₹1,00,000 aggregate |
| 194H | S.No. 1(ii) | Commission or brokerage on sale/purchase of goods, or on a transaction relating to any asset | 2% | ₹20,000 aggregate |
| 194J(a) | S.No. 6(iii) | Professional fees – CA, CS, legal, medical, architectural, engineering, interior decoration | 10% | ₹50,000 aggregate |
| 194J(b) | S.No. 6(iii) | Technical services, call-centre services, royalty for sale of software copies | 2% | ₹50,000 aggregate |
| 194J(1)(ba) | S.No. 6(iii)(c) | Director’s sitting fee/commission, not forming part of salary | 10% | No threshold |
| 194M | S.No. 6(ii) | Aggregate of contract/commission/professional payments by an individual/HUF not otherwise liable to deduct | 2% | ₹50,00,000 aggregate |
S.No. 6(i) (old 194C) — payments to contractors and sub-contractors
The contractor entry covers any “work” carried out under a contract — advertising, broadcasting, telecasting, carriage of goods or passengers (other than by rail), catering, and manufacturing or supply of a product according to the buyer’s specification using material purchased from the buyer or its associate. It does not cover a straightforward sale of goods where the manufacturer sources its own material.
Deduct 1% where the payee is an individual or HUF and 2% for any other payee (firm, LLP or company), on whichever of these triggers a deduction first: a single bill exceeding ₹30,000, or the aggregate of all payments to that contractor in the financial year exceeding ₹1,00,000. Once either limit is crossed, TDS applies on the full amount paid or credited, not merely the amount above the threshold.
Two practical points get missed often. First, where GST is shown separately on the contractor’s invoice, CBDT Circular No. 23/2017 requires TDS to be computed on the base value excluding GST — the circular continues under the 2025 Act by virtue of section 536(2)(j). Deducting on the gross figure over-deducts and creates a reconciliation headache for the contractor. Second, section 393(4) Table S.No. 8(a) (old 194C(6)) gives a genuine NIL-TDS route for goods-transport operators: if the transporter owns ten or fewer goods carriages at any time during the year and furnishes a PAN with a written declaration to that effect, no TDS is required — but the payment must still be reported in the TDS statement.
Worked example — office renovation contract
A private limited company engages an individual contractor for an office renovation billed at ₹2,40,000, paid in two instalments of ₹1,20,000 each. The single-bill threshold is not crossed on either instalment, but the aggregate for the year (₹2,40,000) exceeds ₹1,00,000, so TDS applies on the full ₹2,40,000. As the contractor is an individual, the rate is 1%: TDS of ₹2,400 is deducted, ₹2,37,600 is paid net, and ₹2,400 is deposited by the 7th of the following month (30 April for the March quarter).
S.No. 6(iii) (old 194J) — professional and technical fees
The professional/technical fees entry splits into two rate buckets. Fees for professional services — legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, advertising, company secretarial work, and “authorised representative” services — are taxed at 10%. Fees for technical services, call-centre operations, and royalty paid for the sale, distribution or exhibition of cinematographic films or for the sale of software copies (where it does not amount to a transfer of copyright) are taxed at 2%. Getting the bucket wrong is the single most common error we see here — a management-consulting retainer, for instance, is professional (10%), while an AMC for IT infrastructure support is typically technical (2%).
With effect from 1 April 2025, the threshold for both buckets was raised from ₹30,000 to ₹50,000, and the Finance Act 2025 amendment applies the ₹50,000 limit separately for each payment type — so a vendor billing both professional advice and technical support could cross one threshold without crossing the other. Director’s remuneration that is not salary — typically sitting fees or a commission linked to profits — is covered separately under S.No. 6(iii)(c) (old 194J(1)(ba)) at 10%, with no threshold at all; even a ₹5,000 sitting fee attracts TDS.
Worked example — professional consulting fee
A startup pays a legal consultant ₹45,000 for a one-off contract review in April, and a further ₹18,000 in August for follow-up advice. The April payment alone does not cross ₹50,000, so no TDS applies at that point. By August, the aggregate for the year is ₹63,000, which crosses the threshold — TDS at 10% now applies on the full ₹63,000 (₹6,300), and the earlier April payment should be reconciled: many practitioners deduct the shortfall from the next payment and report accordingly, since the obligation is aggregate-based, not per-invoice.
S.No. 1(ii) (old 194H) — commission and brokerage
The commission entry covers any payment (by whatever name — commission, brokerage, incentive) for services rendered in the course of buying or selling goods, or in relation to any transaction concerning an asset, valuable article or thing, other than securities. It commonly catches sales-agent commission, real-estate brokerage, and distributor incentives structured as a percentage payout. It specifically excludes insurance commission (covered separately under S.No. 1(i), old 194D) and brokerage on securities transacted through a recognised stock exchange.
The rate was cut from 5% to 2% with effect from 1 October 2024. The threshold had been ₹15,000 since 1 June 2016 and was raised to ₹20,000 with effect from 1 April 2025. For FY 2026-27, deduct 2% once aggregate commission or brokerage paid to one payee in the year exceeds ₹20,000.
Also on the radar: interest (old 194A) and e-commerce (old 194-O)
Two related entries worth a mention if your payment mix goes beyond vendors: interest other than on securities (S.No. 5(ii)/(iii), old 194A — e.g. on inter-corporate deposits or unsecured loans) is deducted at 10%, with thresholds of ₹50,000 (₹1,00,000 for senior citizens) on bank/post-office/co-operative-bank interest and ₹10,000 for interest from other payers, all revised effective 1 April 2025. The e-commerce entry (S.No. 8(v), old 194-O — operators deducting on payments to participants) applies at 0.1%, cut from 1% with effect from 1 October 2024 (Finance (No. 2) Act, 2024), with a ₹5,00,000 threshold that applies only where the participant is an individual or HUF.
Do individuals and HUF founders need to deduct at all?
The contractor, commission and professional-fee entries (old 194C, 194H and 194J) apply to individuals and HUFs only if their turnover from business, or gross receipts from a profession, exceeded the tax-audit threshold under section 63 (old 44AB) in the immediately preceding financial year — broadly ₹1 crore turnover for a business (higher where cash transactions are limited) or ₹50 lakh gross receipts for a profession. A founder or professional who was not liable to audit last year has no obligation to deduct this year under these entries.
That does not mean high-value payments escape TDS altogether. S.No. 6(ii) (old 194M) is the residual net: a resident individual or HUF not otherwise liable to deduct must still deduct TDS at 2% (reduced from 5% with effect from 1 October 2024) once aggregate payments to contractors, professionals and commission agents combined cross ₹50 lakh in the financial year. No TAN is needed — deduction is against PAN, reported in the challan-cum-statement that replaces Form 26QD under the new rules, broadly mirroring the property-TDS process (old 26QB).
No PAN, or an inoperative PAN
Section 397(2) (old 206AA) overrides every rate discussed above: if the deductee does not furnish a valid PAN, or the PAN is inoperative (not linked to Aadhaar), TDS must be deducted at the higher of the section rate, the rate in force, or 20%. There is no relief route without a valid, operative PAN on file before the payment — collecting it at vendor on-boarding, not at the first invoice, avoids the scramble.
Compliance checklist
- Deposit TDS by the 7th of the following month (30 April for amounts deducted in March).
- File the quarterly TDS statement on time in Form 140 (old 26Q) for non-salary payments made from 1 April 2026; payments up to 31 March 2026 continue to be reported in Form 26Q.
- Issue Form 131 (old 16A) to the deductee within 15 days of the statement due date.
- Reconcile the GST-exclusive base before computing TDS wherever GST is shown separately.
- Collect PAN (and confirm it is Aadhaar-linked) before the first payment to any new contractor, professional or agent.
- Track aggregate payments per vendor across the year — threshold breaches are cumulative, not per-invoice.
Frequently asked questions
Do I need to deduct TDS on every payment to a contractor or consultant?
Only once the payment (single bill or aggregate for the year) crosses the threshold for that entry in section 393(1) — ₹30,000/₹1,00,000 for contractors (S.No. 6(i), old 194C), ₹50,000 for professional or technical fees (S.No. 6(iii), old 194J), and ₹20,000 for commission (S.No. 1(ii), old 194H). Below the threshold, no deduction is required, though many businesses deduct anyway once they know a vendor relationship will be recurring.
Is TDS deducted on the GST component of a contractor or professional bill?
No. Where GST is indicated separately on the invoice, CBDT Circular No. 23/2017 clarifies that TDS is to be deducted on the amount excluding GST. The circular was issued under the 1961 Act and continues to apply under the Income-tax Act, 2025 by virtue of section 536(2)(j). If the invoice does not separate GST, deduct on the gross invoice value.
What if my contractor or professional does not give me a PAN?
Section 397(2) (old 206AA) overrides the normal rate — you must deduct at the higher of the rate specified in the provision, the rate in force, or 20%. There is no lower-rate relief without a valid, operative PAN, so collect and verify PAN before the first payment.
I am an individual running a small business — do these sections apply to me?
Only if your turnover from business exceeded the tax-audit threshold under section 63 (old 44AB), or your gross receipts from a profession exceeded ₹50 lakh, in the immediately preceding financial year. If you were not liable to audit, the contractor, professional and commission entries (old 194C, 194H and 194J) do not require you to deduct — but S.No. 6(ii) (old 194M) may still apply if your aggregate payments to contractors, professionals or commission agents cross ₹50 lakh in the year.
What is Section 194M and how is it different from 194C/194J/194H?
From FY 2026-27 it is section 393(1) Table S.No. 6(ii) of the Income-tax Act, 2025 (old 194M). It is the catch-all for resident individuals and HUFs who are not otherwise liable to deduct TDS on contract, professional or commission payments (typically because they are not subject to tax audit). Once their combined payments to contractors, professionals and commission agents exceed ₹50 lakh in the financial year, they must deduct TDS at 2% (reduced from 5% with effect from 1 October 2024) on the sum paid or credited, not just on the excess over ₹50 lakh, using PAN — no TAN is required — and file the challan-cum-statement that replaces Form 26QD under the new rules.
Are director sitting fees covered under Section 194J?
Yes. Any fee, commission or remuneration paid to a director that is not part of salary is covered under section 393(1) Table S.No. 6(iii)(c) (old 194J(1)(ba)) at 10%, and — unlike other professional/technical payments — there is no minimum threshold. Even a small sitting fee attracts TDS.
What penalty applies if I deduct TDS but deposit it late, or don’t deduct at all?
Non-deduction attracts interest under section 398(3)(a) (old 201(1A)) at 1% per month from the date deductible to the date actually deducted; deducted-but-not-deposited attracts 1.5% per month. Late filing of the TDS statement adds ₹200/day under section 427 (old 234E), capped at the TDS amount, and a penalty of ₹10,000–₹1,00,000 under section 461 (old 271H) can follow. Section 461 (old 271H): no penalty if tax, interest and fee are paid and the statement is filed within one month of the due date. (The one-year window was cut to one month from 1 April 2025.)
We set up vendor-wise TDS tracking, apply the correct provision and rate, and handle Form 140 (old 26Q) filing and Form 131 (old 16A) issuance to help keep thresholds tracked. If you are not sure whether the tax-audit test (section 63, old 44AB) or the old 194M entry applies to your situation, that is worth a quick call before the next payment run.
TDS Return Filing Tax Audit (Section 63, old 44AB) Services Talk to usRelated reading: our TDS on property purchase (Section 194-IA) guide, TDS on rent (194-I vs 194-IB) comparison, and the TDS on partner remuneration (Section 194T) post cover the other high-frequency TDS situations MSMEs and founders run into.
This article is a general guide to TDS provisions applicable for FY 2026-27 based on rates and thresholds in force as of 25 September 2026, and does not constitute tax advice for any specific transaction. Payments made or credited up to 31 March 2026 remain under the Income-tax Act, 1961; please consult us for your specific facts.