Section 194M: (TDS on Payment to Contractors and Professionals)

Section 194M of Income Tax Act applies for deduction of TDS on payment to resident contractors and professionals.

Before introduction of this section there is no liability of an individual or HUF to deduct TDS on payment for availing any contractual or professional services.

But after the introduction of section 194M of Income Tax Act all these payments come under the preview of TDS.

     

    What is section 194M of Income Tax Act?

    Before the introduction of this section 194M, if an individual and/or HUF make payment to resident individual for carry out any contractual work or availing any professional services and If the individual and/or HUF is not required to get its books of accounts audited then they need not to deduct TDS for such payment.

    If they were required to get a book of accounts audited then have to deduct TDS under section 194C (for contractual works) and 194J (for professional services.

    But, in the new section 194M of Income Tax Act. Every individual and/or HUF has to deduct TDS when the total amount paid to resident individual for carrying out any contractual work or availing any professional services, in a financial year exceeds Rs.50 lacs.

    Under this section there is a condition that books of account should not be audited.

    Now point to be noted is that if a person deducts TDS under section 194C and 194J and gets books of accounts audited then he does not need to deduct TDS under section 194M.

    If an individual and/or HUF deduct TDS under section 194M of Income Tax Act then he can deduct even if with the use of PAN. There is no need to have TAN (Tax deduction account Number) for TDS.

     

    Who can deduct TDS under section 194M?

    • An individual
    • HUF can deduct TDS if they are availing contractual or professional services.

    The contractual or professional services must be from residents. This section does not apply to non-resident.

    TDS should be deducted on the earlier of the following dates.

    • Credit of the amount
    • At the time of payment by cash or by the issue of cheque or draft

     

    What is the rate of TDS under section 194M?

    If the payment exceeds Rs.50 Lacs in a financial year then the rate of TDS is 5%.

    • If payment is from 14th May, 2020 until 31st March, 2021 then rate is 3.75%.
    • If PAN of deductee is not available then rate 20%
    • Any other case rate is 5%

     

    What is a contractual or professional service under section 194M?

    Contractual Services

    • Advertisements
    • Broadcasting and telecasting
    • Carriage of goods and passengers (other than railways)
    • Catering services
    • Manufacturing or supplying 0f product by using material purchased from customers.
    • It also includes sub contracts.

     

    Professional Services

    • Professional fee
    • Technical services fee
    • Director’s remuneration (excluding salary)
    • Royalty
    • Non-compete fees or fee paid to not share any technical know-how.

     

    Conclusion

    In budget 2019 new section 194M has been introduced covering that individual and/or HUF to deduct TDS under section 194M which are not required to deduct under section 194C and 194J.

    So if an individual and/or HUF is not required to get the books of accounts audited then in such case section 194M of income tax act will apply if payment exceeds Rs.50 lacs in a financial year.


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