On Sunday, Finance Minister Nirmala Sitharaman, during her Budget speech, said, “Supply of manpower services is proposed to be specifically brought within the ambit of payment to contractors for the purpose of TDS to avoid ambiguity. TDS on these services will be at the rate of either 1 per cent or 2 per cent only.”
The statement addresses a persisting confusion regarding Section 393 of the Income Tax Act that provided varied TDS for contract work (1-2 per cent) and professional work (2-10 per cent). Earlier, there was no clarity as to which category the supply of manpower would fall under. The threshold for triggering applicability of TDS was also different in both cases. To resovle this, the government proposed to include it under the ambit of “work.” The amendment will take effect from April 1, 2026.
“The Budget proposes to clarify this and include ‘supply of manpower’ within the definition of the term ‘work’ resulting in TDS at the rate of 1 per cent or 2 per cent depending on the category of payer and payee. This would provide much needed clarity and also resolve unnecessary cash flow issues for the budding manpower supply industry,” said Kumarmanglam Vijay, Partner & Head of Practice – Direct Tax, JSA Advocates & Solicitors.
However, as Gouri Puri, Partner, Shardul Amarchand Mangaldas said stakeholders had hoped for TDS rates to be further rationalised into 2 or 3 buckets to avoid classification issues.
“Perhaps this will be picked up in later Budgets” she said.
Published on February 1, 2026
