For payments made on or after 1 April 2026, TDS on contractor payments is governed by Section 393(1) of the Income-tax Act, 2025. According to reports from Mint, the person making the payment to the contractor is responsible for deducting TDS, with the payer being a 'designated person' covered by the law. This includes specified entities such as companies, firms, government bodies, local authorities and other persons covered by the provision. The Income-tax Act, 2025 replaced the Income-tax Act, 1961 with effect from 1 April 2026, with judgments and commentary citing Sections 195, 92B and 2(28A) of the 1961 Act remaining good authority where provisions have been carried forward.
For payments to a resident contractor for carrying out work under a contract, 1% TDS applies when the contractor is an individual or HUF, while 2% TDS applies when the contractor is any other person or entity. As reported by Mint, TDS must be deducted either when the contractor's payment is recorded in the payer's books or when the payment is actually made, whichever happens first. An individual or Hindu Undivided Family (HUF) making payments covered under Section 393(1), Table Sl. No. 6(ii), is required to deduct TDS if the amount or aggregate of such payments during the tax year exceeds ₹50 lakh. The Income-tax Act, 2025 has superseded the previous Income-tax Act, 1961, with statutory references now given under the 2025 Act.
According to Mint reports, TDS is not required on a single payment of ₹30,000 or less under the contractor provision for designated persons. However, if the aggregate payments to the contractor during the tax year exceed ₹1 lakh, the TDS requirement is triggered. For example, if a company pays a construction contractor ₹25,000 in one payment, no TDS is required on that payment by itself, but if the aggregate payments to the same contractor during the tax year exceed ₹1 lakh, TDS becomes applicable under the applicable provision. The Foreign Exchange Management (Guarantees) Regulations, 2026 also regulate cross-border guarantees, with contingent cross-border liabilities often falling within FEMA's borrowing and guarantee regulations in certain structures.
As reported by Mint, a contractor for these purposes is a resident person or entity receiving payment for carrying out work under a contract, including supplying labour for carrying out that work. For construction-related payments, this can include payments made to a contractor engaged to carry out work on a project under an agreed contract. The example provided shows that if an individual pays a contractor ₹45 lakh during the year for constructing a house, no TDS is required under this provision, but if the total payments exceed ₹50 lakh, TDS at 2% applies. The Income-tax Act, 2025 has established comprehensive frameworks for taxation, including provisions under Section 195, 92B and 2(28A) that continue to provide good authority where applicable.
