The Union Budget 2019-20 was presented on 05th July 2019. The Budget has proposed various new Sections for TDS, one of which is 194M which was applicable from 01st September, 2019.
Let’s discuss section 194M in detail :
Discussion of Section 194M
Reason for introduction of TDS under Section 194M
What is the meaning of ‘work’, ‘contract’, 'commission or brokerage' and ‘professional services’ in Section 194M?
Person liable to deduct TDS u/s 194M?
Timit limit for tax deduction at source under 194M?
Rate of TDS under Section 194M
Time limit for depositing TDS u/s 194M and submitting challan-cum-statement?
Due date of providing TDS certificate to deductee
1. Discussion of section 194M
An individual and/or Hindu undivided family (HUF) has to deduct tax at source under Section 194M. Such individuals and HUF must not be required to deduct TDS under section 194C, 194H and 194J i.e they are not required to get their books of accounts audited.
(Books of Accounts are required to be audited if total turnover or receipts of a business exceed Rs 1 crore or where receipts of a profession exceed Rs 50 lakh.)
It applies when the total amount paid to a resident person, individual sum or the aggregate of sums,
- for carrying out any work (including supply of labour for carrying out any work) under a contract,
- Fees for professional service,
- Commission (not being insurance commission) or Brokerage
in a financial year exceeds Rs 50,00,000.
If they are required to get their Books of Accounts audited, TDS deduction shall be applicable as per Section 194C and 194J. The individual and/or HUF who have to deduct TDS under Section 194C (TDS on payment to a contractor) and 194J (TDS on payment on professional fees) shall not deduct tax at source under Section 194M.
Such individuals or HUFs shall be able to deposit the tax deducted using their Permanent Account Number (PAN) and shall not be required to obtain Tax deduction Account Number (TAN)
Payments to non-resident person are not covered under this section.
2. Reason for introduction of TDS under Section 194M (As per memorandum to Finance Act 2019)
At present there is no liability on an individual or Hindu undivided family (HUF) to deduct tax at source on any payment made to a resident contractor or professional when it is for personal use.
Further, if the individual or HUF is carrying on business or profession which is not subjected to audit, there is no obligation to deduct tax at source on such payment to a resident, even if the payment is for the purpose of business or profession.
Due to this exemption, substantial amount by way of payments made by individuals or HUFs in respect of contractual work or for professional service is escaping the levy of TDS, leaving a loophole for possible tax evasion.
To plug this loophole, it is proposed to insert a new section 194M.
3. What is the meaning of ‘work’, ‘contract’, 'commission or brokerage' and 'professional services’ in Section 194M?
i. Work - shall mean as defined under section 194C
"work" shall include—
(b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting;
(c) carriage of goods or passengers by any mode of transport other than by railways;
(e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer or its associate, being a person placed similarly in relation to such customer as is the person placed in relation to the assessee under the provisions contained in clause (b) of sub-section (2) of section 40A,
but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer or associate of such customer.
*Amended by Finance act 2020
Contract: This expression includes sub-contract.
ii. "commission or brokerage" shall mean as defined under section 194H
"commission or brokerage" includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities;
iii. "Professional services" shall mean as defined under section 194J
"Professional services" means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section
4. Person liable to deduct TDS u/s 194M?
An individual or a Hindu undivided family, not required to deduct tax at source under section 194C, 194J and 194H of the Act, if such sum, or aggregate of such sums, exceeds fifty lakh rupees in a year.
5. Timit limit for tax deduction at source under 194M?
TDS under section 194M will be deducted on the earlier of the following dates:
1. At the time of credit of the amount
2. At the time of payment by cash or by the issue of a cheque or draft or by any other mode
6. Rate of TDS under Section 194M
TDS at 5% will be deducted under 194M if the total amount paid to a resident exceeds Rs 50,00,000 in a particular financial year.
In case the PAN of the deductee is not available, then TDS will be deducted at 20%.
7. Time limit for depositing TDS u/s 194M and submitting challan-cum-statement?
Any sum deducted under section 194M shall be paid to the credit of the Central Government within a period of thirty days from the end of the month in which the deduction is made and shall be accompanied by a challan-cumstatement in Form No. 26QD. (As per Notification 98/2019 dt. 18.11.2019)
8. Due date of providing certificate to deductee
Every person responsible for deduction of tax under section 194M shall furnish the certificate of deduction of tax at source in Form No. 16D to the payee within fifteen days from the due date for furnishing the challan-cum-statement in Form No.26QD. (As per Notification 98/2019 dt. 18.11.2019).