| 📅 Updated as on: 7 May 2026 | ⚡ Subject to amendment by Finance Act / CBDT Circular |
From 1st April 2026, Section 194C of the Income Tax Act, 1961 stands replaced by Section 393(1) [Table Sl. No. 6(i)] of the Income Tax Act, 2025. This blog provides a complete legal comparison — old provision, new equivalent, what changed, what stayed the same, and what your business must do now.
Key Takeaways
- Section 194C is replaced by Section 393(1) [Table Sl. No. 6(i)] with effect from 1st April 2026.
- TDS rates are unchanged — 1% for Individual/HUF payees and 2% for all other payees.
- Threshold limits are unchanged — ₹30,000 per payment and ₹1,00,000 aggregate per year.
- Manpower supply services are now explicitly defined as ‘work’ under Section 402(47) — ending years of litigation.
- Payment Code 1017 replaces ‘194C’ in all TDS challans and returns from Tax Year 2026-27.
- TDS certificates must now use Form 131 (not Form 16A) for contractor payments.
- CBDT circulars are now legally binding on all deductors under Section 400(2).
- Transporter exemption continues under same conditions — ≤10 goods carriages + PAN + declaration.
FAQ — Frequently Asked Questions
| Q: My software still shows Section 194C for TDS on contractors. What do I do? A: Update your TDS/ERP software to use payment code 1017 under Section 393(1). Any TDS return filed after 1st April 2026 using ‘194C’ will trigger a validation error at the TRACES portal. Contact your software vendor immediately if the update is not yet available. Q: We have been paying TDS on contractor payments but NOT on manpower supply invoices. Is that now a default? A: Yes. Section 402(47) of the new Act explicitly includes manpower supply services in the definition of ‘work’. From 1st April 2026, TDS @ 1% (Individual/HUF) or 2% (others) is mandatory on manpower invoices. Review past periods for any potential exposure. Q: Do we issue Form 16A or Form 131 to our contractors for FY 2026-27? A: Form 131. Form 16A is the certificate format under the old Act. Under the Income Tax Act 2025 and the new Income Tax Rules 2026, non-salary TDS certificates must be issued using Form 131 for any payment made on or after 1st April 2026. Q: Are CBDT circulars on contractor TDS now mandatory for us to follow? A: Yes. Section 400(2) of the Income Tax Act 2025 makes CBDT guidelines — including circulars on perquisites, contractor definitions, and composite contracts — legally binding on all deductors. The earlier practice of treating them as advisory is no longer defensible. Q: A transporter with 10 goods carriages claims TDS exemption. Does this continue? A: Yes. The transporter exemption continues under the new Act under the same conditions — the transporter must own not more than 10 goods carriages at any time during the year, furnish their PAN, and give a written declaration. Update your vendor declaration format to reference the new section. |
| ⚠ DISCLAIMER This blog is published for general informational and educational purposes only and does not constitute legal, tax or professional advice. Income tax provisions are subject to frequent changes through Finance Acts, CBDT Circulars, Notifications and judicial decisions. The content is updated as on 7 May 2026 and may not reflect subsequent amendments. Fimaco Private Limited makes no representation as to the completeness or accuracy of the information herein. Readers are advised to consult a qualified Chartered Accountant or tax professional before making any compliance or business decisions. For professional guidance, write to info@fimaco.in or visit fimaco.in. |