Section 194M – TDS on payment to resident contractors and professionals

  • 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 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 individual, for carrying out any contractual work or providing any professional service, in a financial year exceeds Rs 50,00,000.
  • If they are required to get Books of Accounts audited, TDS deduction is 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) do not have to deduct tax at source under Section 194M.
  • The individual or HUFs who has to deduct tax can pay the tax to the government by quoting his or her PAN only. Not required to get a tax deduction account number (TAN) for TDS deduction.
  • Payments to non-residents are not covered under this section.
Who has to deduct TDS u/s 194M?
  • The person being an individual or HUF, who has to make payment to a resident for a contract work completed or any professional service provided, will have to deduct tax at source under 194M.
  • As per the Finance Act 2019, any individual/HUF paying any sum to a resident, for carrying out any work (including the supply of labour) under any contract or by way of fees for professional services rendered during the financial year, exceeding Rs 50,00,000 in a year will have to deduct TDS at 5%.
  • This section will be effective from 1 September 2019 onward. TDS amount will be deducted on any payment made after this date even if the contract existed before, provided the payment exceeds Rs 50,00,000.
 When can one deduct tax at source under 194M?

TDS amount will be deducted on the earlier of the following dates:

  • At the time of credit of the amount.
  • At the time of payment by cash or by the issue of a cheque or draft.
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%.

What is the time limit on depositing TDS?
  • When any payment is made by or on behalf of the government – The TDS amount will have to be paid to the department on the day of the payment.
  • Where any payment is made by any other person apart from the government:

The TDS will have to be paid:

  1. If the amount is paid in March – on or before April 30 of the next financial year. For example, if the amount has been paid in March 2020, then the TDS will be deposited to the department by 30 April 2020.
  2. In any other month – within seven days from the end of the month in which the tax deduction is made. For example, if the amount has been paid in the month of September 2019, then the TDS will be deposited to the department by 7 October 2019.

Leave a Reply

Your email address will not be published. Required fields are marked *