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Section 194M- TDS on Payment to Contractors or Professionals

Individuals and HUFs (not liable for tax audit) shall deduct tax from the sum payable to the resident contractor or professional

(Applicable from September 1, 2019)

As per current provisions of Section 194C and Section 194J, no tax is required to be deducted by an individual or HUF from the payment made to contractor or professional in the following cases:

  1. Payment made for services received for personal use
  2. Payment made for services received for business or profession if the payer is not subjected to tax

Due to this exemption, a substantial amount by way of payments made by individuals or HUFs in respect of contractual work or for professional service were escaping the levy of TDS.

Thus, a new Section 194M has been proposed to be inserted in the Act to provide for levy of TDS, at the rate of 5% on the sum paid or credited, to a resident, in a year on account of contractual work or professional fees, by an individual or a HUF, if aggregate of such sums exceeds Rs. 50 lakhs 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.

If estimated tax liability of the deductee justifies no deduction of tax or deduction of tax at a lower rate, he can apply to the Assessing Officer under Section 197 to issue a nil or lower TDS certificate. The scope of Section 197 has been extended to this provision. Thus, the payee can apply to the Assessing Officer to obtain such certificate in respect of sum paid or payable which are subject to TDS under Section 194M.

Example, Mr. A acquired a plot of land on June 1, 2019 for Rs. 50 lakhs. For the construction of a building on such land he paid Rs. 65 lakhs to a contractor on December 10, 2019, Rs. 70 lakhs to the interior decorator on January 2, 2020 and Rs. 10 lakhs to another contractor for painting on March 15, 2020.

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

ParticularAmount paidSectionRate of DeductionAmount of TDSDue date for deposit
Acquisition of land50,00,000194-IA1%50,000July 30, 2019
Construction65,00,000194M5%3,25,000January 30,2020*
Interior Decoration70,00,000194M5%3,50,000March 1, 2020*
Painting (see note)10,00,000

Note: Since the amount paid is less than Rs. 50 lakhs no tax is required to be deducted

* No due date has been prescribed yet for the deposit of tax deducted under section 194M. As two similar provisions are already there in Chapter XVII (Section 194-IA and 194-IB), it is possible that the due dates for the deposit of tax under the new provisions of Section 194M shall be same, i.e., within 30 days from the end of the month in which tax is deducted.

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