TDS on Contract Limit FY 2021-22: What You Need to Know

Tax Deducted at Source (TDS) is a system where tax is deducted at the source of income itself. Under the Income Tax Act, 1961, TDS on specified transactions such as salary, interest, rent, commission, etc. is mandatory. In the case of contracts, TDS is applicable on the total contract value or the amount paid/payable, whichever is lower.

The Finance Act, 2021 has introduced some changes in the TDS provisions on contracts for the financial year 2021-22. Let us take a look at these changes in detail.

Increase in TDS Limit

As per the new provisions, TDS on contracts will be applicable if the contract value exceeds INR 50 Lakhs in the financial year. Previously, the limit was INR 1 Crore. This means that if the contract value is less than INR 50 Lakhs, TDS need not be deducted. However, if the contract value exceeds INR 50 Lakhs, TDS must be deducted at the applicable rate.

Applicable Rates

The TDS rate on contracts has not changed for the financial year 2021-22. The applicable rates are as follows:

• 1% if the payee is an individual or HUF

• 2% if the payee is a person other than an individual or HUF

Note that if the payee does not provide their PAN, the TDS rate will be 20%.

No TDS on Transport Contracts

The Finance Act, 2021 has exempted TDS on transport contracts. This means that no TDS is applicable on payments made to transporters for transportation of goods or passengers.


TDS on contracts is an important aspect of tax compliance for businesses. With the new provisions introduced under the Finance Act, 2021, it is essential that businesses stay updated and comply with the relevant TDS requirements. The increase in the TDS limit and exemption for transport contracts are significant changes that businesses need to take note of. Ensure that your business adheres to the TDS provisions to stay tax-compliant and avoid any penalties or legal consequences.