A new section 194M is proposed to be inserted in the Income Tax Act by the Budget 2019 that provides levy of TDS @ 5% on the sum or aggregate of sums, paid or credited in a year on account of contractual work or professional fees by an Individual or Hindu undivided family, not required to deduct tax at source under sec 194C and 194J of the Act if such sum or aggregate of such sums exceed Rs 50 lacs in a year. However, in order to reduce the compliance burden, it is proposed 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). So, no need to file regular TDS return in such cases.

At present, there is no liability for individual or HUF who are not subjected to audit for any payment made to a resident contractor or professional whether it is for personal use or for the purpose of business or profession. Further any individual or HUF are not liable to deduct TDS on such payment to a resident when it is for personal use. Due to this, substantial amount of payment made by individual or HUF in respect of contractual work or professional service was escaping the levy of TDS, leaving a loophole for tax evasion. To plug this loophole, Sec 194M is inserted.

Some changes have been made Sec 194M while passing finance bill, 2019 in the Lok sabha. The provision is now also applicable to a payment of any sum made to a resident by way of commission (not being commission as per section 194D) or brokerage as defined under section 194H

Applicability

TDS is deductible under the section 194M from 1st September, 2019.

Category of Persons:-

An individual or a Hindu undivided family (other than those who are required to deduct TDS under section 194C, section 194H or section 194J) responsible for paying any sum during the financial year 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

When TDS is to be deducted?

 TDS is deductible at the time of credit or at the time of payment in cash or by issue of a cheque or draft or by any other mode, whichever is earlier,

Rate of Tax

TDS is to be deducted at the rate of 5% on the sum payable to such resident referred above.

Threshold Limit

Deduction shall be made if such sum or aggregate of such sums, credited or paid to a resident during a financial year exceed Rs 50 lacs.

Exemption

The provisions of section 203A shall not apply to a person required to deduct TDS u/s 194M.

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.

Annexure:

Sec-203A: (1) 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”.

(2) Where a “tax deduction account number” or, as the case may be, a “tax collection account number” or a “tax deduction and collection account number” has been allotted to a person, such person shall quote such number—

(a) in all challans for the payment of any sum in accordance with the provisions of section 200 or sub-section (3) of section 206C;

(b) in all certificates furnished under section 203 or sub-section (5) of section 206C;

(ba) in all the statements prepared and delivered or caused to be delivered in accordance with the provisions of sub-section (3) of section 200 or sub-section (3) of section 206C;

(c) in all the returns, delivered in accordance with the provisions of section 206 or sub-section (5A) or sub-section (5B) of section 206C to any income-tax authority; and

(d) in all other documents pertaining to such transactions as may be prescribed in the interests of revenue.

(3) The provisions of this section shall not apply to such person, as may be notified by the Central Government in this behalf.

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