As per newly introduced Section 194M: Payment of commission (not being insurance commission), brokerage, contractual fee, professional fee to a resident person by an Individual or a HUF who are not liable to deduct TDS under section 194C, 194H, or 194J. Tax shall be deducted at the rate of 5% under section 194M with effect from 1/09/2019 when aggregate of sum credited or paid during a financial year exceeds Rs. 50 lakh.
Budget 2019 brings a lot of new Sections in Income Tax Act. 194M is one of those Section. This Section will cover those individuals and HUF who are not covered anywhere else. Coming to earlier days i.e. Before Budget 2019, there is no liability on any individual or Hindu undivided family (HUF) to deduct tax at source on any payment made to a contractor or professional when it is for personal use. Further, even if the individual or HUF is carrying on business or profession but are not subjected to audit U/s 44AB of Income Tax Act, 1961, there is no obligation to deduct tax at source on such payment, even if the payment is for the purpose of business or profession.
Income Tax Department Memorandum to Finance Bill suggest that due to this a substantial amount by way of Payment made by Individuals and HUF’s escapes from levy of Tax Deduction at Source and due to this to whom payments are made also escapes from the jaws of Income Tax resulting in possible tax evasions.
To plug this Loophole, a new Section 194M is inserted in Finance Act, 2019 through which any Individual/ HUF shall deduct TDS at the rate of five per cent on the sum, or the aggregate of sums, paid or credited to a resident person in a year on account of commission (not being insurance commission), brokerage, contractual fee, professional fee, not liable for Tax Deduction at Source under section 194C, section 194H or section 194J, if such sum or aggregate of Such sum exceeds Fifty lakh rupees annually.
Further Section 203A of Income Tax Act, 1961 ,whenever any Person is required to deduct TDS or collect TCS is mandatory to have Tax deduction Account Number (TAN). Wording of the Act is as follows “Every person, deducting tax or collecting tax in accordance with the provisions of this Chapter, who has not been allotted a tax deduction account number or, as the case may be, a tax collection account number, shall, within such time as may be prescribed, apply to the Assessing Officer for the allotment of a “tax deduction and collection account number”.
But for giving relaxation to Individual and HUF’s and reducing the compliance burden, it is provided that such individuals or HUFs shall be able to deposit the tax deducted using their Permanent Account Number (PAN) and shall not be required to obtain Tax deduction Account Number (TAN) as provisions of section 203A not applicable to Individual and HUF’s required to deduct TDS Under section 194M . Same as the way they have provide relaxation under Section 194-IB “Payment of rent by certain individuals or Hindu undivided family” and 194-IA “Payment on transfer of certain immovable property other than agricultural land”
Further if any Budget become Act it is effective from 01st April of Assessment Year but this is effective from 01.09.2019.
Extract of Section 194M For ready reference of our readers-
[Payment of certain sums by certain individuals or Hindu undivided family.
Section 194M. (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, section 194H 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, by way of commission (not being insurance commission referred to in section 194D) or brokerage 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.
(2) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.
Explanation.—For the purposes of this section,—
(a) “contract” shall have the meaning assigned to it in clause (iii) of the Explanation to section 194C;
(b) “commission or brokerage” shall have the meaning assigned to it in clause (i) of the Explanation to section 194H;
(c) “professional services” shall have the meaning assigned to it in clause (a) of the Explanation to section 194J;
(d) “work” shall have the meaning assigned to it in clause (iv) of the Explanation to section 194C.