The Union Budget 2019 announced insertion of a new section relating to TDS. This is Section 194M. This section requires an HUF or an individual to deduct TDS @5%. This deduction is to be made when they make payments exceeding Rs. 50 lakhs in a year to a contractor or a professional.

The proposed Section 194M reads as under (New)

194M.

(1) Any person, being an individual or a Hindu undivided family (other than those who are required to deduct income-tax as per the provisions of section 194C or section 194J) responsible for paying any sum to any resident for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract or by way of fees for professional services during the financial year, shall, at the time of credit of such sum or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to five per cent. of such sum as income -tax thereon:

Provided that no such deduction under this section shall be made if such sum or, as the case may be, aggregate of such sums, credited or paid to a resident during a financial year does not exceed fifty lakh rupees.

(2) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.

 

As per the existing law,Sections 194C  and 194J govern the provisions related to contractual and professional payments. As per these sections,  

 

“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 is required to be deducted by an individual or HUF from payment made to contractor or professional in the following cases:

– Payment made for services received exclusively for personal purposes.

– Payment made for services received for business or profession if payer is not subjected to tax audit u/s 44AB(a)/(b).”

 

The combines effect of these sections made substantial payments out if the purview of TDS.

 

What does this new section 194M mean?

 

194M provides for levy of TDS at the rate of 5% on the sum paid or credited in a year on account of contractual work (including supply of labour for carrying out any work) or professional fees by an individual or a HUF (other than those who are required to deduct income-tax as per the provisions of section 194C or section 194J), 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.

 

This amendment will take effect from 1st September 2019.

 

Important Definitions:

 

i)Contract – shall have the meaning assigned to it in clause (iii) of the Explanation to section 194C

ii) Professional Services – shall have the meaning assigned to it in clause (a) of the Explanation to section 194J

iii) Work – shall have the meaning assigned to it in clause (iv) of the Explanation to section 194C

 

Major points to note:

 

i) Provisions are applicable to an individual or a Hindu undivided family, even though they may not be carrying on any business or profession

ii) It excludes individual or a Hindu undivided family who are required to deduct TDS  under Section 194C or Section 194J, i.e, mainly those individuals or HUF who are liable to tax audit and carrying on business or profession

iii) The recipient should be a  resident. 

iv) TDS  shall be deducted at the time of credit of such sum or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier

v) If estimated tax liability of the deductee justifies no deduction of tax or deduction of tax at 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, 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.

vi) Since no separate due date has been prescribed for deposit of tax deducted under section 194M, it appears that, the due dates for deposit of tax under the new provisions of Section 194M shall be same.

 

 

 

 

 

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