What is the TDS rate on contractor payments?

1% when the contractor is an individual or HUF, 2% for a firm, LLP, company or any other contractor, and 20% if no PAN is given. The same rates apply when a main contractor pays a sub-contractor.

Is TDS on a contractor bill deducted on the amount including GST?

No. Where GST is shown separately on the invoice, TDS is worked out on the bill amount without GST. On a ₹10 lakh bill with 18% GST, 2% TDS is ₹20,000, not ₹23,600.

What is the limit for TDS on contractor payments?

TDS applies when a single payment is above ₹30,000, or when payments to the same contractor in the financial year are above ₹1,00,000 in total.

Is section 194C still used after April 2026?

From 1 April 2026 the Income-tax Act, 2025 applies and contractor TDS is in section 393(1). The rates and limits are the same as under 194C; only the section number on returns and certificates changed.

How do I get the TDS deducted from my bill back?

It shows in your annual tax statement (Form 26AS / AIS) once the client files the TDS return. You claim it in your income-tax return against the tax you owe, and any excess is refunded.

TDS on contractor bills: the 1% and 2%, when it applies, and how you get it back

By Sithu, Founder · 6 min read · Last reviewed 29 October 2026

Every client who pays you for construction work keeps back a slice for income tax. On a ₹10 lakh bill from a company client that is ₹20,000 you do not receive. Unlike BOCW cess, it is not lost: it is tax paid in your name, and it comes back against your income-tax bill or as a refund.

It only comes back if it was deducted on the right figure and filed against the right PAN. This guide covers the rate, the limits, the base, and the checks worth doing on every bill.

The rate

The same rates apply to a sub-contractor. When a main contractor pays you, the main contractor deducts and files it exactly as the client does for them.

Income-tax TDS on payments to a resident contractor
You are	TDS rate
Individual or HUF (proprietor firm)	1%
Partnership firm, LLP, company, any other	2%
Any contractor who has not given a PAN	20%

When it applies

A single payment above ₹30,000, or
Payments to the same contractor above ₹1,00,000 in total in the financial year.
Once the yearly total crosses ₹1,00,000, TDS applies to the whole year's payments, not only the part above the limit.

Worked out on the amount before GST

Where the GST is shown separately on your invoice, TDS is deducted on the bill amount without GST. This is the most common error on contractor bills, and it is easy to spot.

Bill of ₹10,00,000 + 18% GST, company contractor

Bill amount (before GST): ₹10,00,000
GST 18%: ₹1,80,000
Invoice total: ₹11,80,000
Correct TDS: 2% of ₹10,00,000 = ₹20,000
Wrong TDS: 2% of ₹11,80,000 = ₹23,600

The extra ₹3,600 is not lost either, since it is still credited to your PAN, but it is your cash held for months until you file your return. On a year of bills the gap adds up.

How it comes back

The client files a quarterly TDS return quoting your PAN.
The deduction then shows in your annual tax statement (Form 26AS / AIS) on the income-tax portal.
You take credit for it in your income-tax return. If the TDS is more than your tax for the year, the difference is refunded.
The client also gives you a TDS certificate each quarter. Keep it with the bill it belongs to.

Checks worth doing on every bill

Is the rate right? A proprietor firm charged 2% instead of 1% has PAN details wrong on the client's side.
Is it on the amount before GST?
Does it appear in Form 26AS / AIS for that quarter? If not, the client has not filed it, or filed it against the wrong PAN. Chase it while the quarter is fresh.
Do your books show TDS receivable for each bill? At year end, that ledger should match the annual tax statement.

Common questions

What is the TDS rate on contractor payments?: 1% when the contractor is an individual or HUF, 2% for a firm, LLP, company or any other contractor, and 20% if no PAN is given. The same rates apply when a main contractor pays a sub-contractor.
Is TDS on a contractor bill deducted on the amount including GST?: No. Where GST is shown separately on the invoice, TDS is worked out on the bill amount without GST. On a ₹10 lakh bill with 18% GST, 2% TDS is ₹20,000, not ₹23,600.
What is the limit for TDS on contractor payments?: TDS applies when a single payment is above ₹30,000, or when payments to the same contractor in the financial year are above ₹1,00,000 in total.
Is section 194C still used after April 2026?: From 1 April 2026 the Income-tax Act, 2025 applies and contractor TDS is in section 393(1). The rates and limits are the same as under 194C; only the section number on returns and certificates changed.
How do I get the TDS deducted from my bill back?: It shows in your annual tax statement (Form 26AS / AIS) once the client files the TDS return. You claim it in your income-tax return against the tax you owe, and any excess is refunded.

Related guides

GST TDS on works contracts: who can deduct it, and what happens down a sub-contract chain
GST TDS under Section 51 for civil contractors: who may deduct 2%, how to claim it, and what it means when a main contractor deducts it from you.
BOCW cess: what the 1% is, who pays it, and what you get for it
BOCW cess for contractors: the 1% rate, what value it is charged on, who deducts it, and why it is the one deduction you never get back.