Form 140 section codes: contractor, professional and director's fee TDS after 26Q
Form 140 section codes replaced 94C, 4JA and 4JB from 2026-27: contract work 1023/1024, technical 1026, professional 1027, director's fee 1028, T and Y flags.
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The salary return got most of the attention when the new Income-tax Act took over, but the non-salary return changed just as much. Form 26Q became Form 140 for payments from 1 April 2026, and the familiar section codes, 94C, 4JA, 4JB and 94H, gave way to four-digit codes. Getting the Form 140 section codes right matters: a payment under the wrong code shows up wrongly in the payee's tax statement, and that is the call you will get in July.
26Q replaced by Form 140: what changed
The switch follows the tax year. Payments made from April 2026 go on Form 140; corrections for 2025-26 and earlier are still 26Q corrections. We covered the matching change on the salary side in the Form 138 FVU file post.
The TDS provisions themselves moved from separate sections (194C, 194J, 194H and so on) into the table in section 393 of the 2025 Act. Most people still say "194C" and "194J" in conversation, and that is fine. The return, though, wants the new codes from Protean's Form 140 file format (the version we used is dated 22 July 2026).
Form 140 section codes for common business payments
| Payment | Old section | Old 26Q code | Form 140 code |
|---|---|---|---|
| Contract work, payee an individual or HUF | 194C | 94C | 1023 |
| Contract work, any other payee | 194C | 94C | 1024 |
| Fees for technical services | 194J | 4JA | 1026 |
| Fees for professional services | 194J | 4JB | 1027 |
| Remuneration, fees or commission to a director (not salary) | 194J(1)(ba) | 4JB | 1028 |
| Commission or brokerage, insurance | 194D | 94D | 1005 |
| Commission or brokerage, others | 194H | 94H | 1006 |
Two practical points from this table:
- Contract work now splits by payee type. Under 26Q one code covered all contractors. Form 140 separates individuals and HUFs (1023) from companies, firms and others (1024), so the deductee's PAN category must be right in your vendor master.
- Code 1005 is for insurers. Only an insurance company pays insurance commission to its agents. A manufacturer paying a sales agent or a broker uses 1006.
TDS on director sitting fees: code 1028
TDS on director sitting fees is the code most companies miss. Independent and non-executive directors are not employees. Their sitting fees and commission are paid through a bill, not the payroll, and TDS is deducted at the rate for professional fees. In Form 140 these payments have their own code, 1028, described as remuneration, fees or commission to a director of a company other than amounts on which tax is deducted as salary.
A whole-time or managing director on the payroll is different. Salary to such a director goes through Form 138, and only a separate sitting fee or commission paid outside salary goes under 1028. Many companies used to report director fees under the general professional fees code; with a dedicated code, that now looks like an error.
The flags that explain a missing deduction
Form 140 lets you report a payment on which no tax, or less tax, was deducted, with a flag that explains why. The four that matter for contractor bills:
- A: lower or nil deduction under a certificate from the assessing officer. Keep the certificate number and validity.
- C: higher rate because the payee has no valid PAN.
- T: the transporter TDS exemption. A payee in the business of plying, hiring or leasing goods carriages, who owns ten or fewer goods carriages and gives a PAN with a declaration to that effect, gets paid without deduction. The payment is still reported, flagged T, under 1023 or 1024.
- Y: the payment was below the threshold, so no tax was deducted. Reporting these is optional in practice but helps reconciliation.
A worked example from a quarter
An engineering firm in Ahmedabad pays the following in July to September 2026:
| Payee | Amount | Code | Flag |
|---|---|---|---|
| Housekeeping contractor (a private company) | ₹4,20,000 | 1024 | none |
| Individual welding contractor | ₹65,000 | 1023 | none |
| IT support firm, annual maintenance | ₹1,50,000 | 1026 | none |
| Chartered accountants, tax audit fee | ₹2,00,000 | 1027 | none |
| Independent director, sitting fees | ₹1,20,000 | 1028 | none |
| Truck owner with six trucks, PAN and declaration given | ₹2,40,000 | 1023 | T |
| Sales agent, commission | ₹80,000 | 1006 | none |
Under the old 26Q, the first two rows would have shared one code, and the director's fee would usually have sat with the CA firm's fee. Under Form 140 each is distinct.
Whether the IT maintenance contract is technical services or contract work is a judgement that depends on the contract. If you are not sure, ask your CA once and record the decision in the vendor master, so the same vendor is treated the same way every quarter.
Contractor TDS reconciliation before you file
A clean return depends on three sets of figures agreeing: your books, your challans and the return. A short contractor TDS reconciliation each quarter catches most problems:
- Books to challans. The TDS deducted on each bill should sit in a challan with the right minor head and date.
- Challans to return. Each deductee row in Form 140 should point to the challan that paid it, under the right code.
- Return to books, by PAN and code. After filing, read the return's text file back and match it, PAN by PAN, against the bills. Differences here are what your vendors see in their tax statements.
- Vendor master. Check PAN status, payee type (individual, HUF, company, firm) and any lower deduction certificate before the quarter closes.
Validate the file with Protean's current file validation utility for Form 140 before you upload it. The utility checks format, not whether the code you chose is right; that part is yours.
For contract labour and manpower suppliers
Manpower supply and contract labour bills are contract work, and often large. The principal employer's other obligations, wages and records for contract workers, are covered in contract labour compliance under the OSH Code. On the tax side, the important detail is the payee type: a proprietor contractor is 1023, a private limited supplier is 1024.
In Vatsin Payroll, freelancer and contractor bills carry the section, and the quarterly statement sheet uses the Form 140 codes from tax year 2026-27, including 1028 for directors' fees and the A, C, T and optional Y flags, with a reconciliation of bills, challans and the filed return. The code for an unusual payment is still a decision for your CA.