Startups often onboard developers, designers, agencies, warehouse vendors, marketing vendors and operations contractors before the finance process is mature. TDS on contractor payments should not be handled at payment time alone — it needs vendor onboarding, threshold monitoring and monthly deposit controls.
Under Section 194C, TDS applies to payments to a resident contractor for carrying out work, including supply of labour, where the payment is under a contract with a specified person. The official provision requires deduction at the earlier of credit or payment.
| Control point | Official rule to verify | Startup finance action |
|---|---|---|
| Rate | 1% if contractor is an individual/HUF; 2% for others. | Capture constitution from PAN/GST/vendor master before first payment. |
| Single-payment threshold | No TDS where a single contractor payment does not exceed ₹30,000. | Track invoice value before release, not after bank payment. |
| Annual aggregate threshold | TDS applies once aggregate payments to the contractor exceed ₹1,00,000 during the financial year. | Set vendor-wise threshold alerts in the accounting tool. |
| Timing | Deduct at credit or payment, whichever is earlier. | Deduct when booking the invoice if credit happens before payment. |
| Transporter exception | Transporter declaration/PAN rules need separate checks. | Keep transporter declaration in vendor KYC if claiming non-deduction. |
Build a three-step control: classify the vendor at onboarding, tag the TDS section in the accounting system, and run a monthly report comparing vendor ledger, TDS deducted, TDS deposited and Form 26Q preparation status.
This Finin2min article is drafted only from official/government source material. Re-check the live source before publishing if the law, form, threshold, section mapping or portal workflow has been updated.