Section 194M: TDS @ 5% on payment to Resident Contractors & Professionals by an Individual / HUF [applicable w.e.f. 01.09.2019]

A New Section 194M is inserted in The Income Tax Act, 1961 [“The Act”] vide Finance Act, 2019 to provide for levy of TDS at the rate of 5% on the sum paid or credited in a particular year on account of contractual work or professional fees by an individual or a Hindu undivided family (HUF), only if aggregate of such sums exceeds INR 50,00,000/- in that year.

The said Section does not apply to an Individual or HUF who are required to deduct TDS as per the provisions of Section 194C, 194H or 194J of The Act.

Such individuals or HUFs can deposit the tax deducted using their PAN and is not required to obtain TAN, in order to reduce the compliance burden.

There was no liability on an individual or HUF to deduct TDS on any payment made to a resident contractor or professional when it is for their personal use before 01.09.2019. Due to this, substantial amount of payments by an individuals or HUFs in the nature of contractual work or professional service was escaping the levy of TDS, leaving a loophole for possible tax evasion.

Earlier, similar kinds of provisions were introduced like Section 194IA and Section 194IB. The Section 194IA requires transferee to deduct and pay TDS to the government at the rate of 1% on the amount of consideration [> INR 50,00,000/-] for transfer of any immovable property other than agricultural land. The tax deducted is required to be paid challan-cum-statement in Form No. 26QB. The Section 194IB requires an Individual or HUF to deduct and pay TDS at the rate of  5% on monthly Rent payment of more than INR 50,000/- in challan-cum-statement in Form No. 26QC.

Similarly, the CBDT has notified Form No. 26QD (challan-cum-statement) on 18.11.2019 vide Gazette Notification No. 98/2019 for deposit of tax deducted at source as per the provisions of Section 194M of The Act.

The TDS shall be paid within a period of 30 days from the end of the month in which the deduction is made. Also, TDS Certificate in Form No. 16D is to be issued within 15 days from the due date for furnishing the Form No. 26QD under Rule 31A.

However, the utility for the payment of TDS was deployed on 17.12.2019. Considering this practical issue, the CBDT, in exercise of the powers conferred under Section 119 of The Act, extends the Due date for payment of tax deducted at source as per the provisions of Section 194M of The Act as mentioned below vide Circular No. 31/2019 dated 19.12.2019.

September 2019: Due date Extended to 31.12.2019 from 31.10.2019.

October 2019: Due date Extended to 31.12.2019 from 30.11.2019.

Due to extension of due date for submission of challan-cum-statement in Form No. 26QD, the due date for furnishing TDS Certificate in Form No. 16D is also extended to 15.01.2020 for the Month of September 2019 and October 2019.

The said Section is introduced to widen and deepen the tax base and to pluck the loophole for possible tax evasion. It is pertinent to note that Section 194M is irrespective of whether an Individual or HUF is liable for tax audit or not and irrespective of purpose of making payment i.e. for business or personal purposes.

-CA Pratik Bhavsar [E-Mail ID: [email protected]]

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One Comment

  1. S Balasubramanian says:

    There is a problem in entering the date of the contract in 26QD.It is given below
    Date of contract:
    14 aug 2018.

    Contract value:

    Amt paid upto 31 3 2019:
    80 lakhs (This will not come for TDS).

    Payments made from
    1 4 2019 to 8 11 2019 totally 50 lakhs.

    TDS on this is 2.5 lakhs.This is the first I am trying to remit.

    In the NSDL site I entered particulars to make payment of this item first. Just a trial.
    There is a basic problem as far as the “Date of the contract” is concerned .
    Firstly, the years popped up are 2019 and 2020 only. So I can not enter details of my contract of year 2018.
    Secondly, I just gave the date as 1 4 2019, which was also rejected with error message “Date can not be earlier to 1 9 2019”.

    Does it mean that our contract is outside the purview of TDS OR I have to put an acceptable date ( wrongly) to make the payment acceptable.

    After 8 11 2019 ( the date on which the cumulative amount of 50 lakhs was paid) I made two more payments.
    One on 20 11 19 and another on 10 12 19. I may remit TDS for these items, once the question on the first payment is resolved.

    How do I go about? Due to this problem in system, I am a defaulters for 12 days.

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