Section-194M

Section 194M – A brief understanding

A closer look at Section 194M

In this post, we will discuss Section 194M – TDS on payment to resident contractors and professionals. We will cover the following topics:

The CBDT has extended the due date for TDS payment under section 194M to Dec 31, 2019.
The due date for furnishing Form 16D is also extended Jan 15, 2020.
These extensions are applicable for TDS deducted in the months of Sept and Oct.

What is Section 194M?

Section 194M levy of TDS at the rate of 5% on the sum paid or credited in a year on account of contractual work (including supply of labour for carrying out any work) or professional fees by an individual / HUF ( *other than those who are required to deduct income-tax as per the provisions of section 194C or section 194J), if the aggregate of such sum exceeds Rs. 50 lakhs in a year.

However, to reduce the compliance burden, such individuals or HUFs can deposit the tax deducted using their PAN and shall not be required to obtain TAN from 01.09.2019.

Purpose of the 194M section

  • Contract” shall have the meaning assigned to it in clause (iii) of the Explanation to section 194C;
  • Professional services” shall have the meaning assigned to it in clause (a) of the Explanation to section 194J;
  • Work” shall have the meaning assigned to it in clause (iv) of the Explanation to section 194C

Who has to deduct TDS u/s 194M?

  • An individual or HUF who has to make payment to a resident for a contract work completed or any professional service provided will have to deduct tax at source u/s 194M.
  • As per the Union Budget 2019, any individual/HUF paying any sum to a resident for carrying out any work (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%.
  • This section will be effective from September 1, 2019. Any payment exceeding Rs 50,00,000 made after this date will have TDS deducted, regardless of whether the contract was in place before.

When to Deduct the Tax?

You need to deduct tax either at the time of providing a credit of the amount or at the time of payment, whichever is earlier.

Rate of TDS

The tax has to be deducted @ 5%. This amount is to be deducted only if the aggregate sum exceeds Rs. 50 lakhs to one recipient (payment falling within the provisions u/s 194C or 194J or both together) in one financial year.

We have concluded this post on Section 194M. Feel free to share your views and opinions in the comment section below.

FAQ

1.What is the deadline for depositing TDS?

Ans: You must make the TDS payment by or on the 7th day of the following month. For instance, if you deduct tax in July, you should pay it by August 7th.

2.What is the difference between 194C & 194M?

Ans: If an individual falls under 44AD and has a TAN number, they should deduct TDS under section 194C. However, if they fall under 44AD but do not have a TAN number, they should deduct TDS under section 194M.

3.What is TAN?

Ans: The Income Tax Department of India assigns a 10-character alphanumeric code known as TAN, which stands for Tax Deduction and Collection Account Number. Anyone responsible for deducting TDS must obtain this unique identification number as it is mandatory.

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