For logistics startups, freight and transport payments are a routine operating expense, but from a tax compliance perspective, they are also a common source of TDS errors under section 194C. In FY 2025-26, the issue is not just whether tax should be deducted, but when it must be deducted, at what rate, whether the transporter has given PAN, and how the transaction should be correctly reported in Form 26Q.

This matters because logistics businesses often work with a mix of truck operators, freight contractors, aggregators, warehouses, and delivery vendors. If the payroll and GST teams are separate from the accounts payable team, TDS gaps can happen easily. For a startup, this becomes a compliance risk because even one missed deduction can lead to interest, disallowance, vendor disputes, and return-filing defaults.

Section 194C applies when a person responsible for paying any sum to a contractor for carrying out any work, including supply of labour, deducts TDS at the time of credit or payment, whichever is earlier. In a logistics setup, freight and transport payments are usually covered if they are made under a contract for carriage of goods or allied transport services.

1) Threshold under section 194C

TDS is not required if:

Once the threshold is crossed, TDS becomes applicable on the relevant payment stream under that contract.

For logistics startups, this means small repeated freight bills should not be ignored just because each invoice is below ₹30,000. The aggregate amount during the year matters.

2) TDS rate on freight and transport payments

Under section 194C, the rate is generally:

If the PAN of the payee is not available, section 206AA may push the deduction to 20%, subject to the applicable facts. This is where logistics businesses often face vendor friction, because transporters may delay PAN sharing or provide incorrect PAN details.

3) Special rule for transporters and PAN

There is an important relief for certain transporters. No TDS is required on payments to a contractor engaged in the business of plying, hiring or leasing goods carriages if:

This is a practical exemption that logistics startups should use carefully. It is not automatic. The startup must collect and retain the necessary declaration and PAN details in support of the exemption. If the PAN is not available, the safe position is generally to apply TDS as applicable.

4) GST component

Where GST is separately indicated in the invoice, TDS under section 194C is generally computed on the amount excluding GST, if the invoice clearly shows GST separately. This becomes relevant in freight invoices because vendors often raise a composite bill with freight, fuel surcharge, and GST.

5) Reimbursement versus contract payment

A common mistake is treating freight as a pure reimbursement and assuming 194C does not apply. In practice, if the payment is made under a transport arrangement or contract, and the vendor is raising the invoice in its own name, TDS may still apply. Simply labelling a payment as “reimbursement” does not remove the TDS obligation.

Step-by-step guidance

For a logistics startup, the safest approach is to build a vendor-level TDS workflow. Here is a practical process.

Step 1: Classify the vendor correctly

Identify whether the payment is for:

The contract terms and invoice trail matter more than the narration in your books.

Step 2: Check the threshold for each contractor

Track vendor-wise payments during the financial year.

A monthly vendor aging report is very useful here.

Step 3: Obtain PAN and transporter declaration

Before applying the no-TDS transport exemption, obtain:

Do not rely only on oral confirmation from the transporter team. Maintain documentary evidence.

Step 4: Apply the right rate

For many startups, this is the biggest cash-flow risk. Deducting at 20% from freight bills can trigger disputes and service interruptions, so PAN collection should be part of vendor onboarding.

Step 5: Deduct at the correct time

TDS must be deducted at the time of:

whichever is earlier.

This is important where AP books an expense in March but payment goes out in April, or where part payments are made against a running freight ledger.

Step 6: Deposit TDS within the due date

After deduction, deposit the TDS within the prescribed monthly due date, generally by the 7th of the following month. For March deductions, the due date is later, as per the regular TDS timetable.

Late deposit leads to interest and can also affect return filing discipline.

Step 7: Report correctly in Form 26Q

For non-salary TDS payments such as freight and transport charges, the quarterly TDS return is filed in Form 26Q. Make sure the return includes:

If the transporter exemption is claimed, ensure the records support the position in case of future scrutiny.

Step 8: Reconcile with books, GST and vendor ledger

At quarter-end, reconcile:

This is where most startup errors get detected. A small mismatch today can become a demand notice later.

Examples

Example 1: Small freight bills crossing the annual threshold

A logistics startup pays a truck operator:

The single payment threshold is not crossed in April or June, but the aggregate crosses ₹1,00,000 in August. TDS should be examined from the point the threshold is breached, and the startup must ensure the correct deduction is made on the relevant payment stream.

If the operator is an individual and PAN is available, the rate would generally be 1%.

Example 2: Transporter with PAN and 8 goods carriages

A startup pays ₹2,40,000 during the year to a transporter who owns 8 goods carriages and furnishes PAN with the required declaration. In this case, the payment may qualify for the transporter exemption, so no TDS is required under the transport carve-out.

However, if PAN is missing, or the declaration is not maintained, the startup may not be able to defend the exemption in assessment or TDS proceedings.

Example 3: Freight bill with separate GST

A vendor raises an invoice for:

If GST is separately mentioned, TDS should generally be computed on ₹50,000, not on the GST portion. This should be handled consistently in the AP system so that TDS is not overstated or understated.

Example 4: Missing PAN from a regular transporter

A startup pays a transporter ₹1,50,000 during the year, but PAN is not collected. Even though the payment is for transport services, the absence of PAN creates a compliance risk and may trigger deduction at a much higher rate under section 206AA. The vendor may contest the deduction, but the startup will still face the compliance burden.

Common mistakes

For startups, the real risk is not only the tax amount. It is the downstream effect: vendor disputes, disallowance of expenditure, and notices for late filing or short deduction.

Conclusion

For logistics startups, section 194C TDS freight payments need a process-driven approach, not an ad hoc one. The law is straightforward in principle, but the practical execution is where compliance risk arises. Check the threshold, identify the correct payee category, collect PAN, apply the right rate, deduct on time, and file Form 26Q accurately every quarter.

If these controls are built into the accounts payable system from the start, the startup can avoid avoidable TDS disputes and keep freight compliance clean in FY 2025-26. For businesses handling high-volume transport bills, this is not just a tax issue — it is a core operating control.