Introduction of TDS New Section-194M of Income tax act
In general TDS is deducted by business/professionals required to audit their books under Section 44AB.
But as per Budget for F.Y 2019-20, it is clear that government intends to cover more people under provisions of TDS, for reduction in tax evasion & promoting the Loophole free economy.
For example government introduced Section 195(payment To NRI), Section 194IA (Payment for Purchase of Property), Section 194IB (Payment of rent) & Now Section 194M i.e. Payment made to Contractor/Freelancer. These sections are applicable on Individuals, HUF’s and other non-audit professionals subjected to payment limits.
As per above sections, the deductor is not required to apply of Tax Deduction & Collection Number(TAN) & tax shall be deposited by using PAN.
In this article we are discussing the Section 194M
As per current provisions of Section 194C and Section 194J, no TDS is required to be deducted by an individual or HUF for the payment made to contractor or professional in the following cases:
- Payment made for services received for personal use
- Payment made for services received for business or profession if the payer is not subjected to tax
As per section 194M deductor is liable to deduct TDS at the rate of 5% on the sum paid or credited by an individual / HUF(Not Liable for Tax Audit) in a financial year on account for contractual work or professional fees (other than those who are required to deduct TDS as per the provisions of section 194J or section 194C), if aggregate of such proceeds or sum of proceeds exceeds Rs. 50 lakhs in a Financial Year.
Such individuals or HUFs can deposit the tax deducted using their PAN and shall not be required to obtain TAN w/e from 30-Sep-2019.
Transactions which Attract tax deduction under Section-194M
- Contract (including supply of labor for carrying out operations)covered in section 194C
- Other Works covered in section 194C
- Professional services covered in section 194J
Tax to be deducted either at the time of
- Providing a credit of the amount or
- The time of payment.
Whichever is earlier?
If estimated tax liability of the deductee justifies no deduction of tax or deduction of tax at a lower rate, he/she can apply to the Assessing Officer under Section 197 to issue a nil or lower TDS certificate. The scope of Section 197 has been extended to this provision. Thus, the payee can apply to the Assessing Officer to obtain such certificate in respect of sum paid or payable which are subject to TDS under Section 194M.
Example, Mr. X acquired a plot of land on June 1, 2019 for Rs. 55 lakhs. For construction of a building on such land he paid Rs. 70 lakhs to a contractor on December 10, 2019, Rs. 75 lakhs to interior decorator on January 2, 2020 and Rs. 20 lakhs to another contractor for painting on March 15, 2020.
The tax to be deducted by Mr. X has been enumerated in the below table:
| Particular | Amount paid | Section | Rate of Deduction | Amount of TDS | Due date for deposit |
|---|---|---|---|---|---|
| Acquisition of land | 55,00,000 | 194-IA | 1% | 55,000 | July 30, 2019 |
| Construction | 70,00,000 | 194M | 5% | 3,50,000 | January 30,2020* |
| Interior Decoration | 75,00,000 | 194-M | 5% | 3,75,000 | March 1, 2020* |
| Painting (see note) | 20,00,000 | – | – | – | – |
* Since amount paid is less than Rs. 50 lakhs no tax is required to be deducted
Note 1: No due date has been prescribed for deposit of tax deducted under section 194M. As two similar provisions are already there in Chapter XVII (Section 194-IA and 194-IB), it is possible that the due dates for deposit of tax under the new provisions of Section 194M shall be same, i.e., within 30 days from the end of the month in which tax is deducted.