Section 194M- Liability, Time limit to deposit and deduct tax

Last Updated On: June 22, 2020, 3:35 p.m.
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SECTION 194M TDS ON PAYMENT TO RESIDENT CONTRACTORS OR PROFESSIONALS

The Union Budget On 5th July 2019 proposed new sections 194M which came into existence from 1st September 2019.

An individual or Hindu undivided family (HUF) has to deduct TDS under Section 194M. Such individuals and HUF is not required to get their books of accounts audited.

This section is applied when the total amount paid for carrying out any contractual work or providing any professional service, in a financial year which is exceeding more than Rs.50,00,000.

The individual and/or HUF who have to deduct TDS under Section 194C (TDS on payment to a contractor) and 194J (TDS on payment on professional fees) do not have to deduct tax at source under Section 194M.

Person liable to deduct Tax under section 194M:

  • An individual or HUF who pays to a resident contractor or a resident professional for carrying out any work in the nature of personal purpose (including the supply of labour) under any contract or by way of fees for professional services rendered during the financial year, exceeding Rs.50,00,000 in a year will have to deduct TDS at 5% under Section 194M.
  • If any payment is made to a resident by way of commission or brokerage by an individual or HUF who are not required to get their books of accounts audited.

 

The Time Limit for TDS under Section 194M:

TDS under section 194M will be deducted on the earlier of the following dates:

  • At the time of credit of the amount.
  • At the time of payment by cash or by the issue of a cheque or draft.

 

The time limit for depositing TDS under section 194M:

  1. When any payment is made by or behalf of the government- The TDS amount will have to be paid to the department on the day on the day of the payment.
  2. Where any payment is made by any other person apart from the government-
  • If the amount is paid in the month of march- on or before 30th April of the next financial year.
  • In any other month- within seven days from the end of the month in which tax deduction is made.

 

Payments covered under section 194M:

  • Payment (not covered u/s 194C) made to a resident contractor
  • Payment (not covered u/s 194J) made to a resident professional
  • Payment (not covered u/s 194H) made to a resident individual by way of commission.

 

POINTS TO BE REMEMBERED BY THE PAYER/DEDUCTOR:

  1. All individuals or HUFs except those liable to audit under clause a and b of section 44AB making payment to a resident greater than ₹ 50,00,000 are liable to deduct TDS under section 194M.
  2. Tax @ 5% to be deducted from the payment made to the Payee/Deductee.
  3. Collect the Permanent Account Number (PAN) of the Payee/Deductee and verify the same with the Original PAN card.
  4. PAN of the Payee/Deductee as well as Payer/Deductor should be mandatorily furnished in the online Form used for furnishing information regarding the payment.
  5. Do not commit any error in quoting the PAN or other details in the online form. For the purpose of error rectification, you have to contact the Income Tax Department.
  6. Download and furnish the TDS certificate in Form 16D from TRACES and issue to the Payee/Deductee within 15 days from the due date of furnishing of the challan-cum-statement in Form 26QD.

 

POINTS TO BE REMEMBERED BY THE PAYEE/DEDUCTEE:

  1. Provide PAN to the Payer/Deductor to furnish the information regarding TDS to the Income Tax Department.
  2. Verify deposit of taxes deducted by the Payer/Deductor in your Form 26AS Annual Tax Statement.
  3. Insist on obtaining Form 16D from the Payer/Deductor which has been downloaded from the TRACES website only.
  4. The Payee/Deductee can apply to the Assessing Officer under Section 197 to obtain Nil or Lower TDS certificate in respect of sum paid or payable which are subject to TDS under section 194M if his estimated tax liability is justified to the satisfaction to the Assessing Officer to issue such certificate.

 

FAQs TDS on payment of Resident of Contractors or Professionals:

1. A made a payment of Rs.55 Lakh for professional services on 05th September 2019. Whether TDS will be deducted in this case and if yes, on what amount?

Ans: In the above case, TDS will be deducted as the amount of payment exceeds Rs. 50 Lakh and TDS will be deducted on Rs. 55 lakh @ 5% i.e. 2.75 Lakhs.

2. Rahul entered into a contract of catering on 25th July 2019, and payment made of Rs. 55 Lakh on 30 August 2019. Whether TDS will be deducted in this case?

Ans: In this case, the contract was entered before 01st September 2019 but payment was made before 01st September 2019 hence TDS will not be deducted

3. Shree made a payment of professional fees of Rs. 55 Lakh and Shree is liable to get his accounts audited under section 44 AB. Whether TDS is required to be deducted under this section?

Ans: As per this section, individuals who are required to get their accounts audited are not covered hence TDS will not be deducted under this section.

4. An individual receives a bill of catering of Rs. 42 Lakh and a bill of consultancy of Rs. 10 Lakh from one single person. Whether TDS will be deducted?

Ans: The threshold limit of Rs. 50 Lakh is an aggregate limit for both professional and contractual work hence TDS will be deducted. So. TDS will be deducted on 52 Lakh @ 5% i.e. 2.60 Lakh

5. How deductee will get the credit/refund of the tax deducted?

Ans: When tax is deposited to the government through challan, the tax will appear in 26AS of the deducted, and deductee can claim credit of TDS.

6. How to pay the TDS amount to the government under this section?

Ans: Every person responsible for deduction of tax under section 194M shall furnish the certificate of deduction of tax at source in Form No. 16D to the payee within fifteen days from the due date for furnishing the challan-cum-statement in Form No. 26QD under rule 31A after generating and downloading the same from the web portal specified by the Principal Director General of Income-tax (Systems) or the Director-General of Income-tax (Systems) or the person authorized by him

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