TDS on Rent, Professional Fees, Contractors 2026-27

TDS (tax deducted at source) on rent, professional fees and contractor payments is the withholding most businesses deal with every month. From 1 April 2026 it sits in one place: the table in section 393(1) of the Income-tax Act, 2025, which replaced sections 194C, 194-I, 194-IB, 194J and 194M of the Income-tax Act, 1961.

The income tax department's tax payments FAQ says that "broadly, there is no change in policy": the new Act presents TDS "in a simplified and tabular manner", and rates and thresholds are largely the same as before. What did change is how you describe the payment. For anything paid or credited on or after 1 April 2026, you quote the table item of section 393, not the old section number, in challans and TDS statements.

What are the TDS rates on rent, professional fees and contractors for 2026-27?

The rates are 10% on rent of land or buildings, 2% on rent of plant and machinery, 10% on professional fees, 2% on technical services, and 1% or 2% on contractor payments. All of them come from the table in section 393(1) of the Income-tax Act, 2025 (text of the Act as passed by Parliament_Bill.pdf)):

The department's FAQ gives the contractor example itself: a firm filing its TDS statement for the first quarter of tax year 2026-27 "must quote Section 393(1) [Table: Sl. No. 6(i)] of the new Act, and not Section 194C of the old Act", and quoting old section numbers "may result in system-level validation errors".

When the threshold is crossed, tax is deducted on the entire amount, not just the excess. Section 393(1)(a) applies the rate to the whole sum once the amount or the aggregate for the year passes the limit.

Who has to deduct TDS on these payments?

Businesses of every kind deduct it, and so do individuals and HUFs whose business or profession is above the tax audit size. The table uses three definitions from section 402 of the Act:

• Specified person (section 402(37)): any person other than an individual or HUF, plus an individual or HUF whose business turnover exceeded ₹1 crore, or whose professional receipts exceeded ₹50 lakh, in the preceding tax year. This is who deducts on rent under Sl. No. 2(ii) and on professional and technical fees.
• Designated person (section 402(11)): governments, local authorities, companies, firms, co-operative societies, trusts, societies, universities, foreign enterprises and similar bodies, plus individuals, HUFs, AOPs and BOIs above the same ₹1 crore and ₹50 lakh limits. This is who deducts on contractor payments under Sl. No. 6(i).
• Everyone else: individuals and HUFs below those limits still deduct 2% on rent above ₹50,000 a month (Sl. No. 2(i)), and 2% on contract, professional or commission payments above ₹50 lakh in the year (Sl. No. 6(ii)).

So a private limited company or LLP always deducts. A salaried person renting a flat at ₹60,000 a month also deducts, at 2%, under Sl. No. 2(i).

What counts as rent for TDS?

Rent is any payment, by whatever name called, under a lease, sub-lease, tenancy or any other agreement for the use of land, buildings, land appurtenant to a building, machinery, plant, equipment, furniture or fittings. It does not matter whether the payee owns the asset. That definition is in section 402(29).

The rate then depends on what is rented. Plant, machinery and equipment attract 2%; land, buildings, furniture and fittings attract 10%. For individuals and HUFs deducting under Sl. No. 2(i), only rent for land, buildings and appurtenant land counts. The ₹50,000 threshold is for a month or part of a month, so a monthly rent of ₹50,000 or less means no TDS, and anything above it is taxed in full.

Individuals and HUFs under Sl. No. 2(i) do not deduct every month. Note 1 to that entry says the tax is deducted once a year, when the rent for the last month of the tax year (or the last month of the tenancy, if earlier) is credited or paid, whichever comes first.

What counts as professional fees?

Professional services are services rendered in the course of a legal, medical, engineering or architectural profession, accountancy, technical consultancy, interior decoration, advertising, or any other profession that the Board notifies. That is the definition in section 402(28).

Fees for professional services attract 10%, while fees for technical services (other than professional services) attract 2%. Getting the classification right matters: an invoice for "consultancy" may be technical or professional depending on what was actually done. Payments to a director other than salary, such as sitting fees or commission, attract 10% with no threshold at all.

What counts as work for contractor TDS?

Work includes advertising, broadcasting and telecasting, carriage of goods or passengers other than by railways, catering, and manufacturing or supplying a product to a customer's specification using material bought from that customer. These are listed in section 402(47), together with "contract", which includes a sub-contract (section 402(10)).

Where the work is manufacture to specification, the note to Sl. No. 6(i) says TDS is on the invoice value excluding material if the material is shown separately, and on the whole invoice value otherwise. Manufacturing to specification using material bought from someone other than the customer is not "work", so it falls outside contractor TDS.

The Finance Bill, 2026, passed by Parliament in March 2026, also added supply of manpower to work under the customer's supervision, control or direction to the definition (clause 78). The explanatory memorandum says this was done to end the ambiguity over whether manpower supply attracts the contractor rates or the professional and technical fee rates, with effect from 1 April 2026.

When is TDS not deducted on contractor payments?

No TDS is deducted on payments to a transporter who plies, hires or leases goods carriages, owns ten or fewer goods carriages at any time in the year, and gives you a declaration to that effect with their PAN. You must then report the particulars as prescribed. This exception is in section 393(4) of the Act, Sl. No. 8.

The same entry also excludes contract payments made by an individual or HUF exclusively for personal purposes. A company paying a transport contractor who owns 12 trucks, or who has not given the declaration, deducts 1% or 2% as usual.

What happens if the payee does not give a PAN?

TDS is deducted at the highest of the rate in the Act, the rate in force, or 20%. Section 397(2) requires every payee to give the deductor a valid PAN, and the higher rate applies if they do not, so a professional who refuses to share a PAN loses 20% instead of 10%.

Which Act applies to payments around 31 March 2026?

The Act in force on the date of payment or credit, whichever is earlier, governs the TDS. The department's FAQ says anything paid or credited on or before 31 March 2026 is governed by the Income-tax Act, 1961, and anything on or after 1 April 2026 by section 393 of the 2025 Act.

If you credited a March 2026 invoice in your books and deducted TDS then, you do not deduct again when you pay it in April 2026, and the old-Act challan is used to deposit that tax. A lower deduction certificate issued under section 197 of the old Act remains valid for payments on or after 1 April 2026 if it was issued for projected receipts of tax year 2026-27.

When must TDS be deposited and reported?

TDS is deposited by the 7th of the month after the month of deduction, except tax deducted in March, which non-government deductors deposit by 30 April. Individuals and HUFs deducting on rent, contract work or professional fees under Sl. No. 2(i) and 6(ii) pay within 30 days from the end of the month of deduction, through a challan-cum-statement. The FAQ confirms that rule 218 of the Income-tax Rules, 2026 keeps these timelines.

Those individuals and HUFs do not need a TAN for these deductions: section 397(1)(c) of the Act exempts persons deducting under Sl. No. 2(i), 3(i) and 6(ii) from the TAN requirement.

Everyone else reports these payments every quarter in Form No. 140, which replaced Form 26Q, by 31 July, 31 October, 31 January and 31 May. Our TDS return filing service covers deposits, quarterly statements and corrections.

What does it cost to get TDS wrong?

Interest at 1% a month applies if you fail to deduct and 1.5% a month if you deduct but deposit late, under section 398(3)(a), the same rates as under the old Act. On top of that, section 35(b)(i) disallows 30% of a payment to a resident on which TDS was not deducted or, after deduction, not paid by the due date for filing the return. The 30% is allowed back in the year the tax is finally paid.

Clean TDS also depends on clean books. Our article on books of account for a private limited company explains the records that support each deduction, and TDS deducted from your own receipts reduces the advance tax you pay. If your return for last year is still pending, see belated and revised returns.

Frequently asked questions

Is TDS on professional fees still 10% under the new Income-tax Act?

Yes. Section 393(1) of the Income-tax Act, 2025, Table Sl. No. 6(iii), keeps TDS on fees for professional services at 10% from 1 April 2026. Fees for technical services, royalty for distributing or exhibiting films and payments to call centre operators attract 2%. The deduction applies once payments to the same person exceed ₹50,000 in the tax year.

What is the threshold for TDS on professional fees for 2026-27?

The threshold is ₹50,000 in the tax year for each payee. Once total professional or technical fees credited or paid to one person cross ₹50,000, TDS applies to the whole amount, not only the part above ₹50,000. Fees, remuneration or commission paid to a company director, other than salary, have no threshold.

Which section replaced 194J in the Income-tax Act, 2025?

Section 393(1) of the Income-tax Act, 2025, Table Sl. No. 6(iii), covers what section 194J of the 1961 Act did: professional fees, technical fees, royalty and non-salary payments to directors. For payments on or after 1 April 2026, quote this table item in challans and TDS statements, because the department warns that old section numbers may cause validation errors.

Which section replaced 194C for contractor TDS?

Section 393(1), Table Sl. No. 6(i), replaced section 194C. The income tax department's own FAQ uses this example: a firm filing its TDS statement for the first quarter of tax year 2026-27 must quote section 393(1) [Table: Sl. No. 6(i)] and not section 194C. The rates stay at 1% for individual or HUF contractors and 2% for others.

What is the TDS threshold for contractor payments?

TDS applies when a single payment to a contractor exceeds ₹30,000, or when total payments to that contractor in the tax year exceed ₹1,00,000. Once either limit is crossed, you deduct on the full amount. Many businesses track the annual total for regular contractors from April so that they start deducting on time.

Is TDS on rent 10% or 2%?

It depends on the asset and the payer. Specified persons deduct 10% on rent for land, buildings, furniture or fittings and 2% on rent for plant, machinery or equipment. Individuals and HUFs outside the audit limits deduct 2% on rent of land or buildings. In every case the threshold is ₹50,000 for a month or part of a month.

Does a salaried tenant have to deduct TDS on house rent?

Yes, if the rent exceeds ₹50,000 for a month or part of a month. A salaried individual is not a specified person, so they deduct 2% under section 393(1), Table Sl. No. 2(i), once a year when rent for the last month of the tax year or tenancy is paid or credited. They do not need a TAN for this.

Is TDS on rent deducted every month?

Businesses and other specified persons deduct when each month's rent is credited or paid, whichever is earlier. Individuals and HUFs who are not specified persons deduct only once, on the rent for the last month of the tax year or the last month of the tenancy. That single deduction covers the rent for the whole year or tenancy period.

Is supply of manpower covered by contractor TDS or professional fee TDS?

From 1 April 2026, supply of manpower to work under the customer's supervision, control or direction is included in "work" for contractor TDS. The Finance Bill, 2026, passed by Parliament in March 2026, added it to section 402(47) to end the confusion. TDS is therefore 1% for an individual or HUF supplier and 2% for others.

Do transporters have to suffer TDS on freight?

Not if they qualify. Under section 393(4), no TDS is deducted on payments to a contractor who plies, hires or leases goods carriages, owns ten or fewer goods carriages at any time during the tax year, and furnishes a declaration to that effect with their PAN. The payer must report those particulars as prescribed. Larger fleet owners suffer the normal 1% or 2%.

When does an individual or HUF have to deduct TDS on contractor or professional payments?

Individuals and HUFs within the tax audit limits deduct 2% only when their payments for contract work, professional fees or commission to one person exceed ₹50 lakh in the tax year, under Table Sl. No. 6(ii). Individuals and HUFs whose turnover exceeded ₹1 crore, or professional receipts ₹50 lakh, in the previous year deduct at the normal rates.

Is TDS deducted on the full invoice or only above the threshold?

On the full amount. Section 393(1)(a) applies the rate to the entire sum once the amount or aggregate crosses the threshold in the table. If you pay a consultant ₹60,000 in a year, TDS at 10% is ₹6,000, not 10% of the ₹10,000 above the limit.

What rate applies if a professional does not give a PAN?

The higher of the rate in the Act, the rate in force, or 20%. Section 397(2) of the Income-tax Act, 2025 requires everyone receiving a payment subject to TDS to give the deductor a valid PAN. Without it, a professional who would suffer 10% suffers 20%, and the deductor should still report the payment in the quarterly statement.

Which Act applies to a March 2026 invoice paid in April 2026?

TDS follows the earlier of credit or payment. If you credited the invoice to the supplier's account in March 2026, the Income-tax Act, 1961 applies, and you deposit the tax with the old-Act challan. If both credit and payment happened on or after 1 April 2026, section 393 of the 2025 Act applies. Tax deducted on credit is not deducted again on payment.

Is a lower TDS certificate under section 197 still valid after 1 April 2026?

Yes, in many cases. The department's FAQ says a lower or nil deduction certificate issued under section 197 of the 1961 Act remains valid for payments made on or after 1 April 2026 if it was issued for projected receipts of tax year 2026-27. New applications are made under section 395 of the 2025 Act, and deductors apply the rate in the certificate.

Which form replaced Form 26Q for TDS on rent and professional fees?

Form No. 140 replaced Form 26Q for quarterly TDS statements on non-salary payments to residents, including rent, professional fees and contractor payments. The due dates are unchanged: 31 July, 31 October and 31 January for the first three quarters, and 31 May for the January to March quarter, according to the e-filing portal's Form 140 user manual.

What happens if I forget to deduct TDS on rent or professional fees?

Interest at 1% a month runs from the date tax was deductible until it is deducted, and 1.5% a month from deduction until deposit, under section 398(3)(a). In addition, 30% of the payment is disallowed as a business expense under section 35(b)(i) until the tax is paid.

How KNAP Advisory can help

• TDS Return Filing