pri Section 194M TDS on payments of certain Sums by Individual & HUF Section 194M TDS on payments of certain Sums by Individual & HUF

1) Why Section 194M of Income Tax Act, 1961 was introduced?

As per the existing provisions of Section 194C , Section 194H 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, commission or for professional service were out of the purview of TDS, leaving a loophole for possible tax evasion.

2) Who is responsible to deduct tax under section 194M of Income Tax Act, 1961?

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, 194H or section 194J) responsible for paying any sum to any resident shall deduct TDS.

3) When to Deduct TDS under Section 194M?

TDS shall be deducted 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

4) Rate of TDS under Section 194M

The rate of tax deduction u/s 194M is 5% (3.75% w.e.f. 14.05.2020 to 31.03.2021) of such sum.

5) Nature of work performed

Payment should be 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 or by way of commission during the financial year

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 section 194 H

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.

6) Threshold Limit of TDS under Section 194M

TDS shall be deducted only when such sum, or aggregate of such sums, exceeds fifty lakh rupees 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.

Challan-cum statement in Form No. 26QD to be filed within 30 days from the end of the month in which TDS is deducted and TDS Certificate in Form No.16D to be given to deductee within 15 days.

Example: If an individual or HUF who is not liable to TDS u/s. 194C because his business turnover is not exceeding 1 crore or professional fees not exceeding Rs.50 Lakh or for building construction or residential house to a works contractor (with material or without material) and makes payment of Rs.50 Lakh or more in a year then he will be liable to deduct TDS u/s.194M @5% (3.75% w.e.f 14.05.2020 to 31.03.2021) TDS on whole payment as per Sec.194M. Thus, if payment to Works Contractor for construction of any building or residential house is Rs.60 Lakhs, then TDS of Rs.2,25,000/–(@3.75% of entire Rs.60 Lakhs) shall be deducted.

ILLUSTRATION

Mr. XYZ, a salaried employee, acquired a plot of land on June 1, 2020 for ₹ 60 lakhs. For construction of a building on such land he paid ₹ 75 lakhs to a contractor on December 10, 2020, ₹ 65 lakhs to interior decorator on January 2, 2021 and ₹ 40 lakhs to another contractor for painting on March 15, 2021.

The tax be deducted by Mr. A has been enumerated in below table.

Particular Amount paid Section Rate of Deduction Amount of TDS
Acquisition of land 60,00,000 194-IA 1% 60,000
Construction 75,00,000 194M 5% 3,75,000
Interior Decoration 65,00,000 194M 5% 3,25,000
Painting * 40,00,000

* Since amount paid is less than ₹ 50 lakhs no tax is required to be deducted

Summary Table

194M

Payment of certain sums by certain Individuals or HUF

 S NO. PARTICULARS DESCRIPTION
1. Payer Any Individual or HUF
2. Payee Any Resident in India
3. Type of Payment Payment for contract work (194C) OR Commission or brokerage (194H) OR Professional services (194J)
4. Time of Deduction Credit to A/c. OR Payment, whichever is earlier
5. TDS Rate 5 %
6. Limit > 50,00,000

Extract of Section 194M of Income Tax Act, 1961

Section 194M TDS on payments of certain Sums by Individual & HUF

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 194Csection 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.

(Republished with amendments)

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