Content authored by practitioners with experience at Amazon India, Intuit QuickBooks, and the Tata Group. Meet the team →
A junior accountant receives a vendor bill and does not know which TDS section or rate to apply.
Five questions in order narrow the choice: nature of supply, payee type from PAN, contract or purchase, limit crossed, certificate held.
Vendor master with nature of payment, PAN, deductee type, section, and any lower deduction certificate with its dates.
A section and rate for each bill, with hard cases flagged to the CA.
Ask five questions, in this order. What was supplied? Who is the payee? Is it a contract or a purchase? Is a limit crossed? Does a certificate change the rate? The answers point to the TDS (tax deducted at source) section and rate. Hard cases go to your CA.
Section numbers below are from the Income-tax Act 1961, which most people still use. From 1 April 2026 these payments sit in Section 393 of the Income-tax Act 2025, with a payment code for each; the section mapping article shows the link.
What are the five questions?
| Question | What to read | Sample answer |
|---|---|---|
| 1. What was supplied? | Invoice description and contract | ”Monthly housekeeping service” |
| 2. Who is the payee? | Fourth letter of the PAN | ”C, so a company” |
| 3. Contract or purchase? | Who designed it, who supplied material | ”Contract for work” |
| 4. Is a limit crossed? | This bill and the year’s total to this payee | ”Bill ₹95,000, above ₹30,000” |
| 5. Does a certificate change the rate? | Any lower deduction certificate on file | ”None, so normal rate” |
Answer to question 1 decides the family: work (Section 194C), professional or technical fees (Section 194J), rent (Section 194-I), commission (Section 194H), interest (Section 194A) or goods (Section 194Q). The other four questions set the rate and whether to deduct at all.
How do I treat a bill that mixes goods and services, or fees and expenses?
Look at the invoice layout. If materials are shown separately from labour, contractor TDS is usually on the labour part only. If it is one lump sum, deduct on the whole. Expenses billed separately at actuals, with bills, may be treated differently from the fee; see TDS on reimbursements. GST shown separately is left out of the base.
Worked example: three bills
A pharmacy chain (a company) receives three bills in August 2026.
| Bill | Q1 supplied | Q2 payee | Q3 type | Q4 limit | Section and rate | TDS |
|---|---|---|---|---|---|---|
| Software consultant, ₹1,80,000 | Software support | F, a firm | Technical service | Above ₹50,000 yearly | 194J technical, 2% | ₹3,600 |
| Housekeeping, ₹95,000 | Cleaning staff | C, a company | Contract work | Above ₹30,000 | 194C, 2% | ₹1,900 |
| Raw material, ₹3,20,000 | Packing boxes off the shelf | C, a company | Purchase | Chain turnover ₹6 crore, below ₹10 crore | None | ₹0 |
| Total | ₹5,500 |
Question 5 was “no certificate” for all three. Had the software firm held a lower deduction certificate at 0.5%, TDS would be ₹900.
On the first bill, note the choice between technical fees at 2% and professional fees at 10%. Routine software support is commonly treated as technical. Bespoke advice from a qualified professional may be professional. That would make TDS ₹18,000. When in doubt, ask your CA.
When should I escalate a bill to the CA?
Escalate when:
- A contract mixes design, supply and installation in one price.
- A payment could be royalty or service, such as software licences.
- The payee is outside India.
- It is a payee type you have not handled before, such as a trust or government body.
- Two sections both seem to fit and the rates differ.
Getting the section wrong has a cost. Short deduction brings interest under Section 201(1A), and an unpaid deduction can disallow 30% of the expense under Section 40(a)(ia).
What to read next
- Next: TDS on repairs, servicing and AMC bills.
- Fees in detail: TDS on professional and technical fees under Section 194J.
- A common pair: Section 194J or Section 194C for a consultant.
TransactIG reconciles TDS deducted against vendor bills and returns, and surfaces section and rate mismatches in an exception queue.