Section 194M – TDS on Payment to Resident Contractors and Professionals

What is section 194 M?

It is a newly inserted section in Budget 2019 which is applicable from 01 September, 2019. This section was introduced for the purpose to cover some specified high value transactions in personal nature under TDS which was previously excluded from TDS provisions.

As per existing provisions of 194J and 194C, individual & HUF are not required to deduct TDS if:

• Payment made exclusively for personal purposes
• Payment made for other than personal purpose but individual & HUF are not required to get their accounts audited.

TDS will be deducted if aggregate amount of payment for some specified transactions defined under this section exceed Rs. 50 lakh.

Let’s take an example, A made a payment of Rs. 50L for professional services on 10 September, 2019, In this case TDS will not be deducted as amount of payment does not exceed Rs. 50 Lakh.

Which are the specified payments covered under this section?

Following are the specified payments which are covered under this section:

• Payment (not covered u/s 194C) made to a resident contractor
• Payment (not covered u/s 194J) made to a resident professional
• Payment (not covered u/s 194H) made to a resident individual by way of commission

Given below are the nature of payments not covered u/s 194C, 194J and 194H and will be covered under this new section 194M :

Payment to a resident contractor by an individual or HUF for carrying out work in the nature of personal purpose and “work” here means :

• Advertising
• Broadcasting and telecasting (including the production of programmes)
• Carriage of goods and passengers using any mode of transport (but not railways)
• Catering
• Manufacturing or supply of a product as per the specification of a customer by using material purchased from him/her. But does not include manufacturing or supplying a product according to the specification of a customer by using material purchased from other than such customer

Payment to a resident professional for giving professional services by an individual or HUF for carrying out work in the nature of personal purpose and “professional services” here means :

• Fees for professional service,
• Fees for technical service,
• Remuneration or fee or commission to a director of a company (which is not liable to TDS u/s 192).
• Royalty
• Non - compete fees which means payment made for not carrying out any business or profession

Payment to a resident individual or HUF by way of commission.

As per clause (iii) of section 194 C, Contract shall include sub-contracts .

One point needs to be noted that insurance commission does not gets covered under section 194M.

What is the rate of TDS u/s 194M & when TDS is required to be deducted ?

As per the provisions of this new section, TDS will be deducted at the rate of five percent (5%) if the aggregate amount of payment exceeds Rs. 50 Lakh in a particular financial year.

In case, PAN is not available, TDS will be deducted at the rate of twenty percent (20%).

TDS is required to be deducted at time of :

• Credit of the amount.
• Payment by cash or by the issue of a cheque or draft.

whichever is earlier.

Who is responsible to deduct TDS ?

Following persons are liable to deduct TDS under this section :

1. Any individual or
2. HUF

If any payment is made to a resident contractor or a resident professional for carrying out any work in nature of personal purpose

If any payment is made to a resident by way of commission or brokerage by an individual or HUF who are not required to get their books of accounts audited.

Some important points

• This section is not applicable to non residents.
• Lower TDS certificate can be submitted under this section.
• Quote PAN in place of TAN : Government has given relaxation under this section, individual or HUF can deposit TDS to the government using PAN in place of TAN and TAN is not required to be obtained.
• This section is applicable from 01 September, 2019.

If contract is entered before 01 September, 2019 and payment made after this date, in that case TDS will be deducted subject to amount of payments exceeds Rs. 50 lakh.

Example : Lets say, contract entered on 05 July, 2019 but payment was made on 05 September, 2019 of Rs. 52 Lakh.
In the above case, TDS will be deducted on Rs. 52 Lakh @ 5%.