Are you confused about the TDS rate on Freight and its application? This article will clear all major concepts of TDS on freight.
What is TDS on Freight?
The dictionary meaning of freight is the compensation paid for the transportation of goods. As per the Income Tax Act TDS on freight payment comes under the purview of TDS deduction under section 194C. Whenever a payment is made for freight, TDS should be deducted by the recipient of such services (services other than used for personal purpose).
The Recipient must be taxable person located in a taxable territory; he may be a individual, HUF, firm, proprietor, a partnership firm or a company or any other person. The recipient will pay the amount to the transporter net of taxes after deducting TDS.
Example 1– If Mr. A has receives services for his goods transported and transporter Mr. B has raised a bill of Rs. 1,00,000 and suppose TDS rate is 0.75% then tax will be deducted @0.75% on Rs. 1,00,000 which equals to Rs. 750. This amount of TDS (Rs. 750) will be deposited to the government and Mr. A will pay Rs. 99,250 (net of TDS).
Mr.B can see this TDS deducted in 26AS by logging into his Income tax portal. And at the time of Income tax return filing this amount of TDS will be adjusted from the total tax liability of the Mr. B.
What is TDS rate on Freight?
If the transporter (Payee) is an individual/HUF then TDS will be deducted @0.75% (earlier it was @1%) of the bill value. (TDS rate has been reduced to 0.75% due to covd-19 from 14/05/2020 till 31/03/2021.)
If the transporter (payee) is other than an Individual/HUF then TDS will be deducted @ 1.5% (earlier @2%) of the bill value. (TDS rate has been reduced to 1.5 % due to covd-19 from 14/05/2020 till 31/03/2021.)
If the transporter does not furnish his PAN details then TDS will be deducted @20% of the bill value.
What is the limit for TDS on Freight?
Below is the limit for TDS on Freight.
TDS can only be deducted if the value of single freight exceeds Rs. 30,000 in a single contract, or
TDS can only be deducted if the value of all the freight in a financial year of a single transporter is likely to exceed Rs. 1,00,000.
Only in the above two cases a recipient is liable to deduct TDS upon payment made to a transporter for business Purpose and deposit the amount of TDS to government.
As per section 194C if the transporter makes an application to A.O. (Assessing Officer) for non deduction of TDS or less deduction of TDS as his income does not exceeds the basic exemption limit of Rs. 2.5 lacs then the A.O after satisfying with the condition will grant him NIL TDS certificate . This certificate will be shown by the transporter to the recipient for not deducting his TDS.
Example 2-If Mr. A has received a services for his goods transported and transporter Mr. B has raised a single bill of Rs. 29,000 for the financial year 2020-2021 and suppose TDS rate is 0.75% then TDS would not be deducted as the value of the contract does not exceeds Rs. 30,000.
Example 3-If Mr. A receives service for his goods transported and transporter Mr. B has raised a bill of Rs. 29,000 and another bill of Rs. 28,000 for the financial year 2020-2021. If the TDS rate is 0.75% then TDS would not be deducted as the value of the single contract does not exceeds Rs. 30,000 & the aggregate value does not exceeds Rs. 1,00,000 during the financial year.
Example 4-If Mr. A has received a services for his goods transported and transporter Mr. B has raised a bill of Rs. 29,000 in May , another bill of Rs. 28,000 in July , third bill of Rs. 29,500 in Aug & fourth bill of Rs. 22,000 in Jan in the financial year 2020-2021. Suppose TDS rate is 0.75%, then tax will be deducted @0.75% on Rs. 1,08,500 which equals to Rs. 814. This amount of TDS (Rs. 814) will be deposited to the government and Mr. A will pay Rs. 1,07,686 (net of TDS).
As the value of all the contract in a single financial year exceeds Rs. 1,00,000.
Mr. B can see this TDS deducted in 26AS by logging into his Income tax portal .
And at the time of Income tax return filing this amount of TDS Will be adjusted from the total tax liability of the Mr. B.
Latest notification for TDS on Freight
Due to Covid -19 The Finance Minister has reduced to rate of TDS by 25% to ensure more funds in the hands of Transporters, so from 14/05/2020 to 31/03/2021 TDS on Freight U/S 194C is reduced to
0.75% (earlier it was 1%) for Individual / HUF.
1.5% (earlier it was 2%) for other than Individual / HUF.
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