The budget of 2019 introduced various modifications to the already existing income tax rules. During this budget, the government also proposed the addition of Section 194M of Income Tax Act. This section mentions TDS for the services that HUFs or individuals avail from professionals or resident contactors.
Read on to know the various provisions under this section.
Section 194M of Income Tax Act mentions that any HUF or individual who obtains contractual or professional services should deduct TDS at 5% if the overall payable amount is more than Rs. 50 lakh during a particular FY. The primary aim behind the introduction of this section was to maximise tax regularity and accountability of financial liability among HUFs and individuals.
Further, this section holds relevance when the payment category falls under Section 194H, 194C or 194J of Income Tax Act. Individuals and HUFs who deduct TDS under Section 194J and Section 194C can avail exemption from tax deduction under Section 194M.
Moreover, such entities can complete this process with just their PAN. They don’t need to obtain TAN for the purpose of TDS.
However, note that this clause does not apply to any payment made to NRIs (Non-resident Indians).
India witnessed the introduction of TDS under Section 194M of Income Tax Act in the Finance Bill of 2019. This section applies to both business and personal payments. Before the proposal of this section, an individual or HUF had no obligation to deduct TDS while availing professional or contractual services.
Furthermore, they used to refrain from deducting tax at source even when the payment was made in relation to their profession or business. As a result, a significant percentage of contractual work payments and professional fees were debarred from TDS. This increased the emergence of tax fraud in the country.
Evidently, Section 194M of Income Tax Act was introduced to maintain a depth in the structure of the income tax regulations. As per the provisions of this section, TDS shall be applicable in the following payment modes:
If a HUF or individual avails services from professionals or contractors, where the total payable amount is more than Rs. 50 lakh, then the payer is liable to deduct TDS at 5%. Here, the various types of payments include:
Section 194M of Income Tax Act mentions that TDS shall be applicable on the payment made towards a house purchase.
Individuals or HUFs must also deduct TDS if the payment exceeds the said amount towards car parking fees, house purchase, advance fees, water fees, club membership fees and maintenance fees.
According to this section, TDS shall be deducted if a tenant pays a monthly rent of more than Rs. 50,000. In this situation, he/she shall deduct TDS at 5% for the current financial year.
Furthermore, failing to abide by this rule might attract a penalty of 1% interest a month, which can go up to 1.5%.
Also read: How To Use HRA Exemption Calculator Online?
Section 194M of Income Tax Act also mentions the meaning of a few relevant terms. Find details about them below:
As per this section, work could include the following:
As per this section, professional services refer to:
This includes sub-contract and is subjected to clause (iii) of this section.
According to the provisions under Section 194M of Income Tax Act, an individual or HUF is responsible for deducting TDS on payment made towards any contractual or professional service.
The rate of TDS is typically set at 5%. However, the government lowered this rate to 3.75% from May 14 2020 to March 31 2021.
One can deduct TDS while making the payment in cash, cheque or draft or after the amount is credited into the other person’s bank account.
Mentioned below are the modes of depositing TDS:
Also read: How To File TDS on Sale of Property: Registration, Payment Process And Penalty
Section 194M of Income Tax Act obligates HUFs and individuals to deduct tax at source concerning specific payments. In this regard, the deadline to file TDS for the relevant quarters is mentioned in the table below:
|April to June||July 31|
|July to September||October 31|
|September to December||January 31|
|January to March||May 31|
The above sections discuss the various provisions under Section 194M of Income Tax Act. That said, individuals or HUFs must keep these in mind and abide by the same to stay on the safe side of the law.
As per Section 194M of Income Tax Act, the person who deducts TDS must provide the payee with a certificate along with Form 16D. Note that one should do this within 15 days of furnishing the challan cum statement through Form 26QD.
An individual or HUF must deduct TDS on a payment amount of more than Rs.50 lakh at the time of credit of the amount or while making the payment through any other mode, such as cash, cheque or draft.
Section 197 of Income Tax Act provides the benefit of a zero tax deduction or a reduced tax rate. However, to avail this benefit, the property owner or landlord must make an application along with a fee to the assessing officer under Section 194M of Income Tax Act.
The due date for TDS payment is before or on the 7th date of the upcoming month. This means that if a deductor deducts tax in July, he/she will have to pay the tax deducted at source on or before August 7.
Tax Deduction and Collection Account Number or TAN is a 10-digit alphanumeric number, which the Income Tax Department of India allots. Every person who is liable to deduct TDS has to obtain this document.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
|Section 112A||Section 50||Section 245|
|Section 80QQB||Section 32AD||Section 250|
|Section 35D||Section 143 (1a)||Section 115BAB|
|Section 143||Section 79||Section 140A|
|Section 17(2)||Section 3||Section 94A|
|Section 147||Section 80||Section 40A|
|Section 48||Section 115AD||Section 14A|
|Section 45||Section 285BA||Section 6|
|Section 36||Section 87A||Section 80GGA|
|Section 244A||Section 234E||Section 28|
|Section 197||Sectio 548||Section 194J(1)(ba)|
|Section 145A||Section 80P||Section 92CD|
Public Provident Fund (PPF) – Know PPF Details and Its BenefitsIn 1968, the National Savings Institute introduced the PPF scheme. The Public Provident Fund (PPF) ... Read More »
How to Withdraw PF Amount? – Step-by-Step GuideEPF (Employees Provident Fund) is a popular savings scheme for employees in India. The Central Gove... Read More »
Previous Year in Income Tax: Exceptions on Taxation‘Previous Year’ in the Income Tax Act, 1961 is an important concept associated with the payment... Read More »
What are Capital Receipts and What are its Types?The concept of a receipt is easy to understand as it is described as a written record that a paymen... Read More »
What is Anti-Dumping Duty (ADD) – Its Working, Examples and CalculationAnti-dumping duty refers to a tax or other charges levied on a particular imported product. The con... Read More »
Loan to Purchase Land – Types, Features, Eligibility and Documents RequiredLoans for land purchase or plot loans are secured loans given for purchasing plots of land. Borrowe... Read More »
List of 11 Tax-Free Income Sources in India (2023)There are many sources through which a person can earn his/her income. It can be income from salary... Read More »
New GST Rates in India (2023) – Latest Changes in GST RatesGST or the Goods and Services Tax is one of the most significant tax reforms to be ushered in since... Read More »
What is Input Tax Credit (ITC) in GST – Eligibility and Documents Required To Claim ITCGST is consumption-based taxation levied at all stages in a value chain. Set-off of GST paid in the... Read More »
What is Cess on Income Tax: Overview, Types and CalculationCess is a tax on taxes imposed by the Central Government or state governments for specific reasons.... Read More »
Section 80EEB: Eligibility & Deduction AmountElectric vehicles are better for the environment and an efficient alternative to fuel-run vehicles.... Read More »
All information is subject to specific conditions | © 2023 Navi Technologies Ltd. All rights are reserved.