Are you an Individual or HUF Taxpayer? Be Ready to Deduct TDS on Contractual and Professional Services from 1st September 2019
In the Budget 2019 a new Section 194M has been inserted to require any individual or HUF (who is not required to deduct tax under Section 194C or 194J) to deduct tax at source from sum paid to a contractor or professional when it is for personal use e.g. caterer services, event organizing services, house construction or renovation services etc if aggregate payment during the year exceeds Rs. 50 lacs.
At present there is no liability on an individual or Hindu undivided family (HUF) to deduct tax at source on any payment made to a resident contractor or professional when it is for personal use. Even if such payments are made for the during the course of business or profession by an individual or Hindu which is not subjected to the tax audit, The background & the necessity of the new section lies in the fact that due to this exemption from TDS a large number of transactions involving huge value escape from tax ambit and the government doesn’t get any revenue out of this in the form of tax.
Section 194M states (1) Any person, being an individual or a Hindu undivided family (other than those who are required to deduct income-tax as per the provisions of section 194C or section 194J) responsible for paying any sum to any resident for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract or by way of fees for professional services during the financial year, shall, at the time of credit of such sum or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to five per cent. of such sum as income -tax thereon: Provided that no such deduction under this section shall be made if such sum or, as the case may be, aggregate of such sums, credited or paid to a resident during a financial year does not exceed fifty lakh rupees.
Summary of Section 194M
1. Tax Deductible on: Sum paid to a contractor or professional when it is for personal use.
2. Tax Deductible By: Individual or HUF who is not required to deduct tax under Section 194C or 194J
3. Threshold Limit: More than Rs. 50 Lacs (the aggregate payments made to a single service provider during the year exceeds Rs 50 lacs).
4. Rate of TDS: 5%
5. Effective Date: TDS would be applicable from 1st September 2019.
6. TAN requirement: The tax can be deposited under this provision without any requirement to obtain TAN & by using their Permanent Account Number (PAN).
7. Date of Tax Deposition: No separate due date has been prescribed for deposit of tax under section 194M. On the similar lines of Section 194IA (TDS on consideration for transfer of immovable property of 50 lacs or above) & Section 194IB (TDS on Rent exceeding Rs 50,000 per month), the due dates for the deposit of tax under Section 194M can be within 30 days from the end of the month in which tax is deducted.
8. Return of TDS: On the similar lines of Section 194IA & Section 194IB, Government may prescribe challan-cum-statement for deposit of TDS under new section 194M.
9. Nil/Lower Deduction Certificate: The payee can apply to the Assessing Officer under Section 197 to obtain Nil or lower TDS certificate in respect of sum paid or payable which are subject to TDS under Section 194M if his estimated tax liability are justified to the satisfaction to the Assessing Officer to issue such certificate.