In short: TDS on machinery hire charges is not one rate. If you hand the machine over and the hirer runs it, the money is rent and the rate is 2%, with a threshold of Rs 50,000 for a month or part of a month. If you send the machine with your operator and bill for a job done, the money is for carrying out work and the rate is 1% if you are an individual or HUF and 2% otherwise, with thresholds of Rs 30,000 on a single bill and Rs 1,00,000 on the yearly total. Both entries now sit in section 393 of the Income-tax Act, 2025, which came into force on 1 April 2026 and replaced the old 194C and 194I numbering.

Every owner who hires out a machine has had the same argument with a client’s accounts department. They cut 2%. You expected 1%. Or they cut on the full bill when you thought the material should have been left out. The disagreement is almost never about arithmetic. It is about which line of the law the payment falls under, and that is decided by how the deal is structured, not by what the invoice is called.

The one question that decides the rate

Ask this: who is running the machine, and what is being bought?

If the client takes the machine and operates it themselves, they are buying the use of an asset. That is rent. If the machine turns up with your operator and your diesel, and you get paid for cubic metres moved or trips completed or hours of a finished job, the client is buying work. That is a contract for work.

The same backhoe loader can sit on either side of that line depending on the paperwork. This is why two clients can deduct two different rates on what looks like the same machine, and both can be right.

How TDS on machinery hire charges is worked out under each route

What the deal is Where it sits Rate Threshold
Machine handed over, hirer operates it Section 393(1), Table serial number 2 (rent) 2% Rs 50,000 for a month or part of a month
Machine plus your operator, billed as a job Section 393(1), Table serial number 6(i) (work) 1% individual or HUF
2% others		 Rs 30,000 single sum, or Rs 1,00,000 aggregate
Land, building, furniture or fittings let out Section 393(1), Table serial number 2 (rent) 10% Rs 50,000 for a month or part of a month
Work or professional payments made by an individual or HUF not covered above Section 393(1), Table serial number 6(ii) 2% Rs 50,00,000

The rate gap between the two machine rows is small. The threshold gap is not, and that is where owners get caught.

The rent route: 2%, and the monthly line

Section 393 puts rent for the use of any machinery or plant or equipment at 2%. The same table entry taxes rent for land, a building including a factory building, furniture or fittings at 10%. That five-fold difference is worth knowing if you ever let out a yard or a shed alongside the machine. Two rates can apply to one client under one arrangement, and the split has to be visible in the paperwork for the lower rate to hold on the machine portion.

The threshold on this route is Rs 50,000 for a month or part of a month. Note the wording. It is a monthly test, not an annual one, and a part month counts as a month. A machine on hire at Rs 45,000 a month sits under the line. The same machine at Rs 55,000 does not.

The work-contract route: 1%, 2%, and the trap in the yearly total

Where the payment is for carrying out any work under a contract, including the supply of labour to carry out that work, the rate is 1% if the contractor is an individual or a Hindu undivided family and 2% if the contractor is anyone else — a partnership firm, an LLP or a company. A proprietor hiring out a tipper is on 1%. The moment the same business runs through a private limited company, it is 2%.

The thresholds here are the part most owners miss. There are two of them, and either one can trigger the deduction:

  • Rs 30,000 for any single sum, and
  • Rs 1,00,000 for the aggregate of such sums.

So a run of small running bills, none of them above Rs 30,000, still crosses into deduction once the year’s total passes Rs 1,00,000. Owners who bill a long site in weekly instalments often expect to stay clear and do not. Read our note on retention money in construction contracts alongside this, because the two deductions stack on the same running bill and both hit your working capital at the same point in the job.

Material value: split it on the invoice or lose it

For the category of work described in section 402(47)(e) — broadly, making or supplying a product to a customer’s specification using material bought from that customer — the Act is direct about the base. Tax is deducted on the invoice value excluding the value of material, if that value is shown separately in the invoice. If it is not shown separately, tax is deducted on the whole invoice value.

That is a clerical detail with a real cash cost. The protection is in how the bill is drawn, not in an argument afterwards.

The tipper and dumper route most owners never claim

Section 393 carries a specific no-deduction route for small transport operators, and a surprising number of tipper owners never use it. No tax is deducted where all of the following hold:

  • the payment is to a contractor in the business of plying, hiring or leasing goods carriages;
  • that contractor owns ten or fewer goods carriages at any time during the tax year;
  • the contractor furnishes a declaration to that effect along with a PAN to the payer; and
  • the payer files the prescribed particulars with the income-tax authority.

The declaration is the whole thing. Without it on file, the client deducts, and you are left recovering the money through your return months later. If you run a small tipper fleet, this one page at the start of the contract is the difference between cash now and cash next year. Owners already fighting slow clients will recognise the pattern from contractor payment delays on government and EPC work.

What changed on 1 April 2026

If you are searching for 194C or 194I, you are searching the old law. The Income-tax Act, 2025 came into force on 1 April 2026 and replaced the Income-tax Act, 1961. The entire 194-series of separate TDS sections has been consolidated into a single section 393 with one table, where each serial number carries the payment type, the class of payer, the rate and the threshold in one row.

For a machine owner the practical effect is small: the rent-versus-work test and the rates are recognisable from the old regime. What has changed is the reference. A client’s accounts team citing “194I” in 2026 is quoting a repealed section, even if they land on the right rate. The Act also uses the term tax year in place of the old previous-year language, which is worth knowing when you read a deduction certificate.

What to do when TDS is cut from your bill

Deducted tax is not lost money. It is tax already paid on your behalf, and it comes back as credit against your own liability when you file. What costs owners real money is the gap in between — the months where the cash sits with the department instead of funding your diesel and EMIs.

Three habits keep that gap small:

  1. Fix the route before the first bill. Decide with the client whether this is a bare hire or a work contract, and write the contract to match. Our guide to the equipment rental agreement covers the clauses that settle it.
  2. Get the deduction certificate every quarter. Without it, claiming the credit turns into a paperwork hunt at filing time.
  3. Price the delay in. If 2% of your billing sits with the department for eight months, that is working capital you have funded. Owners setting rates should look at the equipment rental rate card and treat this as a real cost of the hire business, not an afterthought.

One more thing worth separating in your head: TDS is not GST. They are different taxes, deducted by different people, on different bases, and both can appear on the same hire bill. If the GST side is also unclear, start with GST on construction equipment.

The bottom line

The rate on your hire bill follows the structure of the deal. Bare machine on hire is rent at 2% above Rs 50,000 a month. Machine with operator delivering a measured job is a work contract at 1% for a proprietor or HUF and 2% for a firm or company, above Rs 30,000 on a bill or Rs 1,00,000 across the year. Both now live in section 393 of the Income-tax Act, 2025. Decide the route before you sign, show material separately on the invoice, and if you run ten or fewer goods carriages, file the declaration that stops the deduction entirely.

If the deduction is squeezing your cash flow between bills, the answer is usually funding structured around the billing cycle rather than a fight with the client’s accounts team. See what is available on equipment finance and match the repayment to when the money actually arrives.

Rates, schemes, specifications and prices change — confirm current terms with the OEM, dealer, bank or insurer before deciding. Tax positions turn on the facts of your own contract; confirm your classification and thresholds with your chartered accountant before acting.