Tds on Contractor Limit for Fy 20-21

TDS on Contractor Limit for FY 20-21: What You Need to Know

As the financial year 2020-21 draws to a close, businesses and contractors alike need to be aware of their tax deductions at source (TDS) responsibilities. In particular, contractors should pay attention to the TDS limit for the financial year, which was recently revised by the government. Here`s everything you need to know.

What is TDS on Contractor Limit?

Before diving into the specifics of the revised limit, let`s first understand what TDS on contractor limit means. TDS is the amount that is deducted at source from the payments made to contractors. This is done to ensure that the contractor pays their tax obligations to the government, and it’s the responsibility of the business to deduct this amount and remit it to the government.

The TDS on contractor limit is the maximum amount of TDS that needs to be deducted from the contractor`s payment. The contractor`s TDS rate is applicable on the payment exceeding the limit mentioned in the section under which the payment is made.

What is the Revised TDS on Contractor Limit for FY 20-21?

The Ministry of Finance recently revised the TDS on contractor limit for the financial year 2020-21, which now stands at 7.5%. This limit is applicable on contracts for professional services and payment or credit to resident contractors. It is important to note that this limit is not applicable to all types of contractors.

For example, if a business hires a contractor for professional services, and the payment or credit for the services exceeds Rs.50 lakhs during the financial year, a TDS of 7.5% needs to be deducted from the payment exceeding the limit for the financial year. If the contractor is a non-resident or an individual/HUF (for payment other than professional services), then a different TDS limit may apply.

What Are the Penalties for Non-Compliance?

It is vital for businesses to comply with the TDS on contractor limit to avoid penalties. If a business fails to deduct or remit TDS to the government, it may attract a penalty, interest, or both. The penalty may be equal to the amount of TDS that was not deducted or remitted.


As a business or a contractor, it`s crucial to stay updated about the TDS on contractor limit for the financial year 2020-21. Make sure to review the revised limit and ensure compliance with the regulations. Failing to comply may result in penalties and interest, which can add up and cause financial strain in the long run. By staying on top of your TDS obligations, you can avoid unnecessary hassle and focus on growing your business.