Which TDS Section Applies to Your Payment? 194C vs 194J vs 194Q vs 194H

Which TDS Section Applies to Your Payment? 194C vs 194J vs 194Q vs 194H

When you make a payment to a vendor, contractor, or service provider, the first question is always: which TDS section applies? The answer determines the rate you deduct, the threshold that triggers the obligation, and the payment code you use on the challan. Getting it wrong has consequences for both you and the payee.

This guide walks through Section 194C, 194J, 194Q, and 194H, explains the key distinctions, and gives you a decision framework for the common overlap scenarios.

Quick Reference: Rates and Thresholds at a Glance

No PAN in all cases: deduct at 20% under Section 206AA.

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Section 194C: Payments for Work or Contracts

What it covers

Section 194C applies when you pay a resident contractor or sub-contractor to carry out work. The Income Tax Act defines "work" to include:

• Advertising (agencies, hoarding, digital, broadcast)
• Broadcasting and telecasting
• Carriage of goods (transport, logistics, couriers)
• Carriage of passengers (chartered vehicles, not Indian Railways)
• Catering contracts
• Manufacturing or supply using raw materials supplied by you
• Contract staffing and manpower supply

What it does not cover

If the contractor sources their own raw materials and delivers a finished product, the transaction is a purchase of goods, not "work." For example, if you order 500 custom cartons and the printer buys the paper themselves, that is a purchase. If you supply the paper, it is work under 194C.

Threshold

TDS is not required if:

• A single payment does not exceed Rs 30,000, AND
• The aggregate payments to the same contractor in the year do not exceed Rs 1,00,000.

Once either limit is crossed, TDS applies on the entire amount paid or credited, not just the excess.

Who must deduct

Individuals and HUFs must deduct TDS under 194C only if their turnover exceeded Rs 1 crore (business) or Rs 50 lakh (profession) in the preceding financial year. All companies, firms, LLPs, trusts, and government bodies must deduct regardless of their own turnover.

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Section 194J: Fees for Professional or Technical Services

What it covers

Section 194J applies to payments for:

Professional services (10% rate):

• Chartered accountant, company secretary, or cost accountant fees
• Legal fees (advocate, solicitor)
• Medical professional fees
• Management consultant or advisory fees
• Director remuneration (non-salary directors)
• Architect, engineer, or interior designer fees

Technical services (2% rate):

• IT support, software maintenance, and helpdesk fees
• Engineering or technical consultancy fees
• Data analytics or processing services
• Fees paid to call centres
• Royalty on cinematograph films

The distinction between professional and technical services matters because the rates differ. A payment to an architect who provides creative design services is professional (10%). A payment to a software firm for ongoing technical support is technical (2%).

Threshold

TDS is required once the aggregate payment to a single professional or firm exceeds Rs 30,000 in a year. Unlike 194C, there is no per-payment threshold. Once the cumulative total crosses Rs 30,000, TDS applies from that point onward.

Who must deduct

All persons (companies, firms, individuals, HUFs) who make these payments, subject to the individual/HUF turnover test: individuals and HUFs must have had turnover exceeding Rs 1 crore (business) or Rs 50 lakh (profession) in the preceding year.

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Section 194Q: Deduction on Purchase of Goods

What it covers

Section 194Q is a buyer-side TDS obligation. If you purchase goods from a resident seller and both of the following conditions are met, you must deduct TDS:

1. Your total sales, gross receipts, or turnover in the preceding financial year exceeded Rs 10 crore.
2. Your purchases from a single seller in the current financial year exceed Rs 50 lakh.

The 0.1% is deducted on the amount exceeding Rs 50 lakh, not on the full purchase value.

What it does not cover

Section 194Q covers goods only. Payments for services are never under 194Q, regardless of the transaction size. If a payment is for a service or work, go to 194C or 194J.

Section 194Q also does not apply when the seller is required to collect TCS under Section 206C on the same transaction. In that case, the seller collects TCS and the buyer's 194Q obligation is extinguished.

Threshold

• Buyer's own turnover: must exceed Rs 10 crore in the previous FY.
• Per-seller purchase threshold: Rs 50 lakh in the current FY from a single seller.

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Section 194H: Commission and Brokerage

What it covers

Section 194H applies when you pay commission or brokerage to a resident agent. The defining test is whether a principal-agent relationship exists. If a person acts on your behalf and earns a percentage or fixed fee for connecting, facilitating, or intermediating, that payment is commission.

Common examples:

• Sales commission paid to a marketing agent or distributor
• Brokerage paid to a property broker or insurance agent
• Referral fees paid to a business development partner
• Fees paid to a channel partner acting as your sales representative

The 2% rate applies from October 2024 (reduced from the earlier 5%).

What it does not cover

• Trade discounts are not commission. A discount given by a seller to a buyer to encourage volume purchases is not subject to 194H, even if the buyer earns a margin.
• Fees paid to professionals for their advice are under 194J, not 194H, even if the professional earns a percentage of a deal.

Threshold

TDS is required once aggregate commission payments to a single agent exceed Rs 20,000 in a year. This threshold is lower than 194C and 194J.

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How to Decide: Common Overlap Scenarios

194C vs 194J: Contractor or Professional?

This is the most common classification question. Use this test:

Is the payee doing work that requires a specialised professional qualification or knowledge?

• Lawyer, CA, doctor, management consultant → 194J (professional, 10%)
• Printer, caterer, transport company, advertising agency → 194C (contractor, 1% or 2%)

A second test: is the payee supervised by you and working on your specific instructions, or do they apply independent professional judgement?

• An IT firm providing ongoing technical maintenance follows your specifications → 194J technical (2%)
• An IT firm building a product to your brief and applying engineering judgement → could be 194J professional (10%) or 194C depending on whether raw materials are involved

When in doubt, ask whether the payee's work involves independent professional judgement. If yes, lean toward 194J. If it is execution of a task, lean toward 194C.

194C vs 194Q: Work Contract or Purchase?

The critical question: who supplies the raw material?

If the transaction is a purchase of goods and your turnover exceeds Rs 10 crore, 194Q applies. If it is a work contract regardless of who owns the materials, 194C applies.

194H vs 194J: Commission or Professional Fee?

The test is the nature of the relationship:

• If the payee acts as your agent (on your behalf, earns a cut of transactions they facilitate) → 194H
• If the payee provides independent professional advice (lawyer, consultant, advisor) → 194J

A marketing consultant who designs your campaigns and charges a fixed fee is 194J. The same person who places your ads with media houses and earns a percentage of the media spend is 194H on the commission portion.

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New Section Numbers Under the Income Tax Act 2025

From April 1, 2026, the Income Tax Act 2025 replaced the 1961 Act. The old section numbers (194C, 194J, 194Q, 194H) are repealed for new transactions. All these payments now fall under Section 393 with numeric payment codes.

Using the old section number (for example, 194C) on a challan for a post-April 2026 transaction makes the return defective and blocks the payee's Form 26AS credit. Filing form is also changed: use Form 140 (replaces Form 26Q) for all non-salary resident TDS from Q1 FY 2026-27 onward.

For transactions where credit or payment occurred before April 1, 2026, continue to use the old section number and file on Form 26Q.

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Frequently Asked Questions

Can 194C and 194J apply to the same payment?

No. A single payment falls under one section. If a firm provides both technical services and supply of materials in a bundled contract, you should ask for a bifurcated invoice. Apply 194J to the services component and 194C to the work component. If the invoice is not bifurcated, most tax practitioners apply the dominant nature test: if the contract is primarily for services, use 194J; if primarily for execution of work, use 194C.

My turnover is below Rs 10 crore. Do I still need to deduct TDS on goods purchases?

No. Section 194Q applies only to buyers whose turnover in the preceding year exceeded Rs 10 crore. Below this threshold, the 194Q obligation does not arise. You may still have obligations under 194C if the purchase involves a work contract.

I pay a freelancer on a project basis. Is it 194C or 194J?

It depends on the nature of the work. A freelance graphic designer, writer, or programmer applying independent creative or technical judgement is typically 194J. A freelancer executing a defined task under your supervision (data entry, delivery, installation) leans toward 194C. The deciding factor is whether independent professional knowledge is the primary input.

My vendor has registered GST on the invoice. Do I deduct TDS on the GST amount?

No, if the GST component is separately shown on the invoice and paid separately to the government. TDS is deducted on the base amount excluding GST in that case. If GST is not separately shown and is bundled into a single amount, TDS applies on the entire invoice value.

I paid commission to a Zomato or Swiggy for restaurant orders. Is this 194H?

Payments to e-commerce operators like Zomato for facilitating orders may fall under Section 194O (now Section 393 code 1022) rather than 194H. Section 194O was introduced specifically for e-commerce operator deductions. Consult your CA if your business makes these payments regularly.

Do these section numbers still appear in TDS returns for FY 2025-26 transactions?

Yes. Any transaction where the earlier of credit or payment occurred before April 1, 2026 uses the old section numbers (194C, 194J, 194Q, 194H) and is filed on Form 26Q. The old Act remains operative for those transactions even if the deposit or filing happens after April 1, 2026.

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Information in this article is based on the Income Tax Act 1961, the Income Tax Act 2025, CBDT circulars, and press releases available as of May 2026. Rates and thresholds are subject to change through Finance Acts and CBDT notifications. Verify the latest position at incometax.gov.in before filing.