The Finance Minister presented the Union Budget for the Financial Year 2019-2020 on 5th July 2019 and on 1st August 2019 said the Finance Bill, 2019 got assent from the President Shri Ram Nath Kovind. The Budget introduced new section 194M covering TDS applicability on payment done to resident contractors, commission / brokerage and professionals. Let us analyze what the newly introduced section 194M has to say, in the present article.
Individual or HUF [whose total sales / gross receipt / turnover from business or profession doesn’t exceed the monetary limit specified under section 44AB (a) or (b)] making payment to a resident in respect of the following, is liable to deduct TDS –
♠ It should be noted here that the section 194M covers within its ambit the individual / HUF who are not liable to get their accounts audited. However, the individual / HUF requiring to get their account audited are already covered under respective section 194C, section 194H and section 194J and hence they are not included here. Explaining the situation in tabular format –
|Type of payment||Section under which TDS is deductible|
|Individual / HUF liable to get their accounts audited||Individual / HUF not liable to get their accounts audited|
|Carrying out any work (which includes supplying of labor for carrying out any work) in pursuance of any contract||Section 194C||Section 194M|
|Commissioner or brokerage||Section 194H||Section 194M|
|Fees for professional service||Section 194J||Section 194M|
♠ TDS under section 194M is not to be deducted if the aggregate of sum credited or paid to a resident during the Financial Year doesn’t exceed INR 50 Lakhs.
♠ Further section 194M (2) states that the provisions of section 203A of the Income Tax Act, 1961 doesn’t apply to the Deductor. Meaning thereby that the Deductor liable to deduct TDS under 194M is not mandatorily required to obtain TAN (Tax Deduction and Collection Account Number).
1. Contract – As per explanation (a) to section 194M, the contract has the same meaning as contained in Explanation (iii) to section 194C which says –Contract includes sub-contract.
2. Commission or brokerage – As per explanation (b) to section 194M, the commission or brokerage has the same meaning as contained in Explanation (i) to section 194H which includes –
3. Professional Services – As per explanation (c) the professional services has the same meaning as contained in Explanation (a) to section 194J which means – Services rendered by a person carrying on –
4. Work – As per explanation (d) the work has the same meaning as contained in Explanation (iv) to section 194C which includes –
The Individual / HUF covered under section 194M are required to deduct TDS within earlier of the following dates –
As per section 194M, the Deductor is liable to deduct TDS at the rate of 5%. However, in case, the Deductee fails to submit the Permanent Account Number (PAN), then, the Deductor is required to deduct TDS at Maximum Marginal Rate of 20%.
The provisions of newly inserted section 194M of the Income Tax Act, 1961 shall be effective from 1st September 2019.
|TCS – Tax Collection at Source – A Complete Guide|
|TDS Rate Chart for Financial Year 2019-2020|
|Section 192 – TDS on Salary|
|Section 192A – TDS on Premature withdrawal from EPF|
|Section 193: TDS on Interest on Securities|
|Section 194 – TDS on dividend|
|Section 194A: TDS on interest other than interest on securities|
|Section 194B and Section 194BB – TDS|
|Section 194C – TDS on Contractors|
|Section 194D – TDS on insurance commission|
|Section 194DA – TDS in respect of Life Insurance Policy|
|Section 194E – TDS on payment to Non-resident Sportsmen or Sports Association|
|TDS under Section 194EE and Section 194F|
|Section 194G TDS on Commission on Sale of Lottery Tickets|
|Section 194H – TDS on Commission or Brokerage|
|Section 194I of Income Tax Act, 1961 – TDS on Rent|
|Section 194IA TDS on transfer of immovable property|
|Section 194IB – TDS on Rent paid by Individual / HUF|
|Section 194LA: Payment of Compensation on acquisition of certain immovable property|
|TDS under Section 194LB, 194LBA, 194LBB and 194LBC|
|Section 194LC: TDS on income by way of interest from an Indian Company or a business trust|
|Section 194LD TDS on income by way of interest on certain bonds and Government Securities|
|Section 194J TDS on Fees for Professional or Technical Services|
|Section 194N – TDS on Cash Withdrawals|
|Section 195 TDS on payment of any other sum to a non-resident|