TDS for manufacturing businesses: contractors, rent, fees, purchases and the quarterly return

Any manufacturing business that pays job workers, contractors, a landlord or a professional adviser must deduct tax at source from those payments, and a buyer with a large turnover may also have to deduct on purchases of raw material. Under the Income-tax Act 2025, which applies from 1 April 2026, the non-salary deductions sit mainly in section 393. Accountants and many ledgers still use the old section numbers from the 1961 Act (194C, 194-I, 194J, 194Q and others), and this article therefore gives both.

Tax is deducted when the amount is credited or paid, whichever is earlier. It is deposited by the 7th of the following month (30 April for March), and the payments are reported each quarter on Form 140, which replaces Form 26Q. The money at stake is larger than the tax itself: a missed deduction can lead to disallowance of 30% of the payment, in addition to interest and late fees. Control rests on mapping each vendor to its row in the section 393 table before the first bill is booked.

Salary TDS remains under section 392 (section 192 of the 1961 Act) and falls outside the detailed scope of this article.

1. When deduction is triggered

Deduct at the time of credit or payment, whichever is earlier. For a manufacturer that means:

• booking job-work or contract labour in the purchase or expense ledger;
• crediting rent for the month;
• providing for professional fees at month-end or year-end;
• releasing a bank payment even when the book entry was made earlier.

A higher rate applies under the Act when the payee has no PAN. PANs should therefore be collected before the first payment, since a missing PAN is otherwise discovered only when the quarterly statement fails validation.

2. Payments a factory sees most often

The rates and thresholds below follow the department's stated position that section 393 retains the 1961 rates and monetary thresholds, which are now presented as table entries. Each payment should be matched to the exact row in the section 393 table.

Contractors and job workers (old 194C). Machining, fabrication, painting, packing, loading and contract labour usually fall under this row when the arrangement is a contract for work. A pure purchase of goods falls outside it, so the contract row should never be applied to a raw-material invoice.

Rent. Factory sheds in MIDC, a city office, and hired DG sets or machines can all be rent. Because the rates differ, land and buildings are split from plant and machinery.

Professional and technical fees. Payments to chartered accountants, advocates and design consultants belong on the fees rows, as do many technical service retainers. The word "charges" on an invoice does not move a professional engagement to the contract rate.

Purchase of goods (old 194Q). A buyer whose turnover in the preceding financial year exceeded ₹10 crore must monitor each resident seller. When purchases from that seller pass ₹50 lakh in the year, 0.1% is deducted on the excess (section 393(1), Table Sl. No. 8(ii) in the mapping used on this site). Seller TCS under the old 206C(1H) logic can interact with this. Tax is deducted or collected as the current table and rules require, and where the law gives priority to one, the same turnover bears only that one.

Goods-transport contractors. In substance, the section 393 framework keeps the declaration and PAN-based relief for transporters who own a limited number of goods carriages. The declaration must be on file before nil deduction is applied.

3. Deposit deadlines

For a company or other non-government deductor, tax deducted in a month is generally deposited by the 7th of the following month. Tax deducted in March is due by 30 April.

The correct challan or payment minor head must be used with the deductor's TAN. When the statement is processed, a payment recorded against the wrong assessment year or major head gives the deductor no protection.

4. Quarterly statements: Form 26Q / 27Q and their successors

Unless a specific extension is notified, the quarterly statement follows the familiar due dates: 31 July, 31 October, 31 January, and 31 May for the quarter ending March.

After filing, the TDS certificate is issued to the payee (Form 16A under the old rules; Form 131 under the 2026 Rules for non-salary). Payees set the credit shown in the department's system against advance tax and self-assessment tax. Disputes with job workers and landlords frequently arise from certificates issued late.

5. Lower or nil deduction certificates

Section 395 of the 2025 Act (section 197 of the 1961 Act) allows the payee to obtain a certificate for deduction at a lower rate, or for no deduction. As the deductor:

• take a copy before paying at the reduced rate;
• apply the rate and ceiling stated in the certificate, and disregard verbal assurances;
• stop the reduced rate when the certificate period ends;
• still report the payment in the quarterly statement at the rate actually deducted.

Such certificates often arrive mid-year from large machining job workers. A register should record the payee, certificate number, rate and validity. It should also track the invoice totals consumed against any cap.

6. Disallowance if TDS is missed

Section 35(b)(i) of the 2025 Act (section 40(a)(ia) of the 1961 Act) disallows 30% of a payment to a resident where tax was deductible and was not deducted, or was deducted but not paid by the due date of the return. The disallowed amount is allowed in the year in which the tax is deposited.

This disallowance is separate from interest and late fees. In tax audits of manufacturers, a year-end provision without TDS is a common adjustment; see the year-end review checklist.

7. A month in a Satpur plant

The figures are illustrative. No real business is described.

A private limited company in Satpur MIDC (turnover above ₹10 crore) in October 2026:

The October deductions are deposited by 7 November 2026, and every line is included in the quarter's Form 140. Where the mill's invoice shows GST separately, TDS is computed on the taxable value in line with the current circular position.

8. Controls against the usual defaults

• Map each vendor to a TDS category in the ERP before the first bill.
• Run a monthly report of credits without TDS where the category requires it.
• Reconcile challans ↔ statement ↔ books before the quarter closes.
• Track 194Q-style sellers with a year-to-date purchase total in addition to the current bill.
• Store section 395 certificates in one folder with expiry dates.
• At year-end, review provisions for job work, commission and fees (see the year-end article).

What this means for a manufacturer

• Treat credit in the books as the deduction event, even when the bank payment comes later.
• Use section 393 table rows for 2026-27 filings, although vendors may still refer to the old 194C/194J labels.
• File Form 140 / 144 on time; keep Form 26Q/27Q only for the pre-April 2026 periods they still cover.
• Budget for the 30% disallowance on any systematic miss, because it is larger than the TDS itself.

This article is general information on the law as at 1 October 2026 and is not advice on any particular case. Table serial numbers, forms and thresholds should be checked against the current Income-tax Act 2025, the Income-tax Rules 2026 and the department’s portal before deducting or filing.