FM Nirmala Sitharaman has presented her first Union Budget on 5 July 2019.  In the Union Budget Sec 194M and Sec 194N of Income Tax Act, 1961 has introduced with a view to encourage digital payments and discourage the practice of making payments in cash, the Union Budget 2019 has introduced Section 194N for deduction of tax at source (TDS) on cash withdrawals exceeding Rs 1 crore.

Let’s Discuss the Section 194M of Income Tax Act,1961

1. Section 194M: TDS on Certain payments made by Individuals/ HUF (Applicable From September 1, 2019)

Who is Deductor under Section 194M:

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)

Persons covered under Sec 194C/ 194H/ 194J:

an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year.

By Virtue of the above provision, if an Individual/ HUF whose books are subjects to Tax audit as per Sec 44AB (a)/(b) of Income Tax Act,1961 during the immediately preceding the financial year are not liable to deduct TDS U/S 194M. if an Individual/ HUF whose books of accounts are not subjects to Tax audit as per Sec 44AB (a)/(b) of Income Tax Act,1961 during the immediately preceding the financial year are liable to deduct TDS U/S 194M.

Who is Deductee under Section 194M:

Any person

Transactions Covered for Tax Deduction under Section 194M:

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.

(also covered Payment/ Credit to a resident contactor or resident professional, when such payment is for personal use)

When TDS is deductible under Section 194M:

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

Threshold Limit for TDS deduction under Section 194M:

Tax is deductible if the aggregate amount paid or payable during the financial year to a resident  exceeds 50 Lakhs.

i.e. Amount paid or credited in excess of 50 lakhs is liable for deduction under section 194M

Rate of Tax for Tax Deduction under Section 194M:

Tax is deductible at the rate of 5 percentage of payment or credit.

Lower TDS Certificate:

Recipient may apply for Nil/lower deduction certificate under section 197.

TAN not necessary:

The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.

Individual/HUF covered under section 194M shall be able to deposit tax deducted using  PAN and shall not be required to obtain TAN.

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  1. VRamaswami says:

    When an individual builds a house, the contractor buys the material from the market and he pays for it and hence the amount paid to the contractor is not covered under this section. As per definition of “work” or “contract” it covers only those cases where the individual supplies or contractor buys the material from individual and the payment to contractor exceeds 50 lacs that too only the amount paid exceeds 50 lacs after sep 2019. For 2020, it is the total amount paid during a financial year. Is this inference correct.

  2. Usha says:

    U/s194m is tax deducted in excess of 50 lacs or if it exceeds 50 lacs ,that excess amount is alone subject to tax or when it exceeds 50 lacs , is 50 lacs also subject to tax

  3. Roni says:

    A charitable trust which does not have GST registration pays for a hall of a hotel with food (invoice states “FOOD and Accomodation”) and for which is charged GST @ 5%.
    In such case where the total amount paid to the hotel by the trust is around Rs. 4 Lacs per annum.
    How much TDS % should be deducted from the payments to the hotel?
    Could you please enlighten…

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October 2021