Summary of Section 194M- TDS on payment to resident contractors and professionals

Recently, a lot of changes are observed in the Finance Act. Especially, in the field of tax – Income Tax or in GST. Some sections are amended and some are recently introduced. Let us see one of the newly introduced TDS Section 194M.

Q. What is section 194M?

This section was introduced to provide for levy of TDS at the rate of 5% on the sum paid or credited in a year on account of contractual work or professional service of above Rs 50 lakh in a financial year. Such individuals and HUF not required to get their books of accounts audited.

The individual or HUFs who has to deduct tax can pay the tax to the government by quoting his or her PAN only. Not required to get a tax deduction account number (TAN) for TDS deduction.

Everything about Section 194N- TDS on Cash Withdrawal

Q. To whom this section is applicable?

This section is applicable to

• Individual
• HUF
• Non – Audited Cases

But it’s not applicable to those who belongs to following category-

• Audited cases
• Who are covered under the provisions of section 194C or 194J
• Body of Individuals
• Association of Persons
• Payments to non-residents

Income Tax on selling of Shares and Securities

Q. When can one deduct TDS?

TDS amount will be deducted on the earlier of the following dates:

1. At the time of credit of the amount.
2. At the time of payment by cash or by the issue of cheque or draft.

Q. Why this section introduced?

Following are the reasons behind introduction of this section:

• This section applies to both personal as well as business related payments. This means tax will be deducted at source from any money paid by an individual or HUF to a resident contractor.
• Previously, there was no liability on an individual or HUF to deduct tax at source in the situations mentioned above.
• Also, the individuals or HUFs carrying business or profession which are not subjected to any audit were also not deducting any tax at source, even when the payment was made for the purpose of business or profession exceeds the specified limit.
• A major amount of payment made for contractual works and professional fee was escaping the levy of TDS because of this exemption, which was creating a scope for tax evasion.

Penalty for not showing the income in Income Tax Return

Q. What is the meaning of ‘work’, ‘contract’, and ‘professional services’ under this Section?

Work:  “Work” in this section would include:

1. Advertising
2. Broadcasting and telecasting including production of programs for such broadcasting or telecasting.
3. Carriage of goods and passengers by any mode of transportation, other than railways.
4. Catering.
5. Manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer. But it excludes manufacturing or supplying a product according to the specifications of a customer by using material purchased from a person, other than such a customer.

Don’t Go Blind When Planning Tax On Your Income

Professional services: The phrase, professional services in this section would include:

1. Professional fee
2. Fees for technical services
3. Remuneration paid to directors excluding salary (For example, sitting fees to attend board meetings)
4. Royalty
5. Payments in the non-compete fees (i.e., fees paid to not carry on any business or profession for a specified time and within certain geographical boundaries) or fees paid to not share any technical knowledge or know-how.

Contract: This expression includes sub-contract.

Difference between Section 44AD, 44ADA and 44AE of Income Tax Act

Q-What is the Rate of TDS under this section? 

TDS at 5% will be deducted only if the total amount paid to a resident exceeds Rs 50,00,000 in a particular financial year.

In case the PAN of the deductee is not available, then 20% rate of TDS is deducted.

Q. What is Due Date of filing of TDS returns? 

The deadline to file return for the 4 quarters are :

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The author of above article is Sneha Bhalotia. 

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