As per the existing provisions of Section 194C and Section 194J, an individual or HUF, who are not liable to tax audit under Section 44AB(a)/44AB(b), shall not be required to deduct tax under these provisions. Thus, no tax is required to be deducted by an individual or HUF from payment made to contractor or professional in the following cases:
– Payment made for services received exclusively for personal purposes.
– Payment made for services received for business or profession if payer is not subjected to tax audit u/s 44AB(a)/(b).
Due to this exemption, substantial payments made by individuals or HUFs in respect of contractual work or for professional service was out of the purview of TDS, leaving a loophole for possible tax evasion.
A new Section 194M has been proposed to be inserted in the Act to provide for levy of TDS at the rate of 5% on the sum paid or credited in a year on account of contractual work (including supply of labour for carrying out any work) or professional fees by an individual or a HUF (other than those who are required to deduct income-tax as per the provisions of section 194C or section 194J), if aggregate of such sums exceeds Rs. 50 lakhs in a year. However, in order to reduce the compliance burden, it is proposed that such individuals or HUFs can deposit the tax deducted using their PAN and shall not be required to obtain TAN. This amendment will take effect from 1st September 2019.
It has further been clarified by way of an Explanation that, 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) “professional services” shall have the meaning assigned to it in clause (a) of the Explanation to section 194J;
(c) “work” shall have the meaning assigned to it in clause (iv) of the Explanation to section 194C.
– For deposit of TDS by individual or HUF paying rent of more than Rs 50,000 per month u/s. 194IB, there is challan-cum-statement in Form 26QC. For deposit of TDS by any person paying consideration for transfer of immovable property of 50 lacs or above u/s 194IA there is challan-cum-statement in Form 26QB. On the similar lines, Govt. may prescribe challan-cum-statement for deposit of TDS under new section 194M.
– If estimated tax liability of the deductee justifies no deduction of tax or deduction of tax at lower rate, he 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, 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.
– Since no separate due date has been prescribed for deposit of tax deducted under section 194M, it appears 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.
It is important to keep in mind the TDS u/s 194M is irrespective of whether payer is liable for tax audit or not and irrespective of purpose of making payment i.e. for business or personal purposes.