TDS on Contractor Payments: How Old Section 194C Maps to New Section 393 Code 1017

The Old Section 194C Framework

Section 194C of the Income-tax Act, 1961 required any person (other than an individual or HUF not subject to audit) making payments to a resident contractor for carrying out 'any work' (including supply of labour) to deduct TDS at:

• 1% — where the payment is made to an individual or HUF contractor
• 2% — where the payment is made to any other person (company, firm, etc.)

TDS applied if a single payment exceeded ₹30,000, or the aggregate of payments to that contractor during the financial year exceeded ₹1,00,000. No TDS was required on payments to transporters owning ≤10 goods carriages who furnished their PAN and a declaration.

The New Reference: Section 393(1), Sl. No. 6(i), Code 1017

Under the Income-tax Act, 2025, this same transaction type — TDS on payments to resident contractors for work contracts — is reported under Section 393(1), identified specifically as Table Serial Number 6(i) within the Section 393 schedule, with the numeric Payment Code 1017 used in TDS returns and certificates.

Worked Example

Suppose a private limited company pays a contracting firm ₹85,000 for repair work completed in May 2026 (Tax Year 2026-27):

• Old approach (pre-April 2026): Deduct TDS at 2% (₹1,700) under Section 194C, since the payment exceeds the ₹30,000 single-payment threshold.
• New approach (from April 2026): Deduct TDS at 2% (₹1,700) — the same rate and threshold logic — but report it under Section 393(1), Sl. No. 6(i), Payment Code 1017 in the TDS return for that quarter.

The amount deducted, the deposit deadline (7th of the following month, with the usual March exception), and the quarterly TDS return filing obligations remain governed by the same overall framework — only the section/code reference for this specific transaction type changes.

What About Sub-Contractors and Transporters?

Payments to sub-contractors for work under a main contract, and payments to goods transport operators, were historically also covered under Section 194C with the same rate structure (1%/2%) and the transporter exemption for those furnishing PAN and owning 10 or fewer goods carriages. These continue to be covered under the Section 393(1) framework, likely under the same or an adjacent table entry/payment code — businesses should confirm the exact sub-code with their TDS software provider, as Section 393's tabular schedule may assign slightly different codes to sub-categories within the broader 'contractor payment' classification.

Action Items for Accounts Teams

• Update vendor master data systems to map contractor-payment transaction types to Payment Code 1017 (or the applicable sub-code) for payments from 1 April 2026.
• Brief your TDS return preparer/software vendor — most major platforms are rolling out updated templates that map old section letters to new Section 393 codes automatically; confirm your version is updated before the first quarterly return covering April-June 2026.
• Retain old-format records for FY 2025-26 payments — any contractor payment made before 1 April 2026 continues to be reported under Section 194C in the relevant TDS return (Q4 FY2025-26), even if filed after 1 April 2026.
• No change to TDS certificates issued to contractors in terms of the underlying tax credit — contractors will see the new section/code reference on their Form 26AS-equivalent statement for FY2026-27 payments, but the credit itself works exactly as before.