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Section 194M of the Income Tax Act, 1961

As per Finance Bill of 2019, “TDS on PAYMENTS TO RESIDENT CONTRACTORS AND PROFESSIONALS” is applicable to Individuals and HUFs (Hindu Undivided Family) making ‘Payments to Resident Contractors and Professional’ value greater than ₹ 50,00,000. Section 194M of the Income Tax Act, 1961 states that for all the transactions with effect from September 1, 2019, Tax @ 5% or 3.75% (from 14.05.2020 to 31.03.2021)  should be deducted (depending upon the Date of Payment/Credit to the Deductee) by the Payer/Deductor at the time of making ‘Payments to Resident Contractors and Professional’ Tax so deducted should be deposited to the Government Account through any of the authorized bank branches.

As per the existing provisions of Section 194C , Section 194H and Section 194J, an individual or HUF, who are not liable to tax audit under Section 44AB(a)/44AB(b), shall not be required to deduct tax under these provisions. Thus, no tax was required to be deducted by an individual or HUF from payment made to contractor or professional in the following cases:

  1. Payment made for services received exclusively for personal purposes
  2. Payment made for services received for business or profession if payer is not subjected to tax audit u/s 44AB(a)/(b).

Responsibilty of Payer/Deductor:

  1. Who will deduct TDS: All individuals or HUFs (except those liable to audit under clause a and b of section 44AB) making payment to a resident greater than ₹ 50,00,000 are liable to deduct TDS under section 194M.
  2. Rate of TDS: Tax @ 5% or 3.75% (from 14.05.2020 to 31.03.2021) to be deducted from the payment made to the Payee/Deductee(depending upon the Date of Payment/Credit to the Deductee).
  3. PAN:
    1. Collect the Permanent Account Number (PAN) of the Payee/Deductee and verify the same with the Original PAN card.
    2. PAN of the Payee/Deductee as well as Payer/Deductor should be mandatorily furnished in the online Form used for furnishing information regarding the payment.
    3. Do not commit any error in quoting the PAN or other details in the online Form. For the purpose of error rectification you have to contact Income Tax Department.
  4. TDS Certificate: Download and furnish TDS certificate in Form 16D from TRACES and issue to the Payee/Deductee within 15 days from the due date of furnishing of the challan-cum-statement in Form 26QD.

What should Payee/Deductee do?

  1. Provide PAN to the Payer/Deductor to furnish the information regarding TDS to the Income Tax Department.
  2. Verify deposit of taxes deducted by the Payer/Deductor in your Form 26AS Annual Tax Statement.
  3. Insist on obtaining Form 16D from the Payer/Deductor which has been downloaded from TRACES website only.
  4. The Payee/Deductee can apply to the Assessing Officer under Section 197 to obtain Nil or Lower TDS certificate in respect of sum paid or payable which are subject to TDS under section 194M if his estimated tax liability are justified to the satisfaction to the Assessing Officer to issue such certificate.

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