What is TDS Code 1023?

TDS Code 1023 refers to tax deduction on payments made to contractors under the new Income Tax Act.

It is governed by:

• Section 393(1)
• Table Sl. No. 6(i).D(a)

This code specifically applies when the contractor is an individual or HUF.

For reference, such payments were earlier covered under Section 194C of the Income Tax Act, 1961.

Nature of Payment Covered Under TDS Code 1023

This code applies to payments made for:

• carrying out any work under a contract
• supply of labour for carrying out work
• vendor or contractor services

Examples include:

• construction contracts
• repair and maintenance work
• manpower supply
• fabrication or job work

TDS Rate for Code 1023

• Standard Rate: 1%
• Rate if PAN not available: 20%

TDS must be deducted at the time of:

• credit of the amount, or
• payment, whichever is earlier

Threshold Limit for TDS Code 1023

TDS is applicable when:

• Single payment exceeds ₹30,000, or
• Aggregate payments exceed ₹1,00,000 in a financial year

Both conditions should be evaluated — even if individual payments are below ₹30,000, TDS becomes applicable once total payments exceed ₹1,00,000 in a financial year.

Who is Required to Deduct TDS?

TDS under Code 1023 must be deducted by:

• companies
• firms
• businesses
• specified persons making payments to contractors

Quick Comparison: TDS Codes 1023 vs 1024

Difference Between TDS Code 1023 and 1024

TDS Code 1023 and 1024 both apply to contract payments, but the difference lies in the type of contractor.

TDS Code 1023 applies when the contractor is an individual or HUF, and the TDS rate is 1%.

TDS Code 1024 applies when the contractor is a company, firm, or other entity, and the TDS rate is 2%.

In simple terms:

• 1023 → Individual / HUF (1%)
• 1024 → Company / Firm (2%)

Correct identification of the contractor type is essential to ensure proper TDS deduction.

Practical Example

If a business pays ₹50,000 to an individual contractor:

• TDS @ 1% = ₹500
• Net payment = ₹49,500

If total payments during the year exceed ₹1,00,000:

• TDS applies even if individual payments are below ₹30,000

Common Mistakes to Avoid

• using Code 1024 instead of 1023
• applying incorrect TDS rate
• ignoring threshold limits (₹30,000 / ₹1,00,000)
• incorrect classification of contractor type
• errors in reporting and compliance

Where is TDS Code 1023 Used?

This code is used in:

• TDS deduction and reporting systems
• challan selection while depositing TDS
• accounting and ERP systems
• compliance and reconciliation processes

How to Identify If 1023 Applies to Your Payment

TDS Code 1023 applies if:

• payment is made under a contract
• contractor is an individual or HUF
• payment exceeds threshold limits
• payee is a resident

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Common Use Cases of TDS Code 1023

TDS Code 1023 is commonly used in situations such as:

• hiring individual contractors for construction or repair work
• payments to freelancers providing manpower or labour services
• job work or fabrication services carried out by individuals
• small vendor payments under contractual agreements

Frequently Asked Questions

What does TDS Code 1023 mean?
It refers to TDS on contract payments to individual or HUF contractors.

What is the TDS rate for 1023?
1% (20% if PAN is not available).

What is the threshold limit?
₹30,000 per transaction or ₹1,00,000 annually.

What is the difference between 1023 and 1024?
1023 applies to individuals/HUF (1%), while 1024 applies to companies/firms (2%).

Does 1023 apply to professional services?
No. Professional services are covered under TDS Code 1027.

Final Thoughts

TDS Code 1023 is essential for contract-based payments, especially when dealing with individual contractors.

Understanding its correct application helps ensure:

• accurate deduction
• proper compliance
• avoidance of penalties

Need Help with TDS Compliance?

If you need assistance with:

• selecting the correct TDS code
• deduction and calculation
• return filing or corrections

our team can assist you with end-to-end compliance.