Salary and contractor payments are both subject to TDS, but the similarity mostly ends there — the applicable section, rate structure, and return form are all different, and mixing them up is a common compliance error.
Calculated based on the employee's estimated annual tax liability, factoring in their chosen tax regime, declared investments, and deductions — reported via Form 24Q.
Deducted at a flat rate on each payment (typically 1-2% for contractors under 194C, 10% for professional/technical fees under 194J), regardless of the recipient's overall tax situation — reported via Form 26Q.
The key distinction: salary TDS is tailored to the individual's tax profile and recalculated through the year; contractor/professional TDS is a fixed percentage applied transaction by transaction.
No — it's based on estimated annual tax liability, which can change through the year as declarations, bonuses, or regime choices are updated.
Typically 1% for individual/HUF contractors and 2% for other entities under Section 194C, subject to threshold limits.
Yes, though this is uncommon and should be structured carefully, since misclassifying an employee as a contractor (or vice versa) has compliance implications beyond just TDS.
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