CA Pratibha Goyal | Aug 30, 2019 |
Individuals must deduct TDS on payments to contractors, professionals from Sept 1: Know all about it
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. But Budget 2019 has introduced a new section 194M, wherein an individual or HUF paying any sum to a contractor or a professional or commission or brokerage more than Rs 50 lakh in a financial year would be required to deduct tax at source (TDS) at the time of credit of such sum or at the time of payment of such sum; whichever is earlier.
Below are some of the relevant FAQ’s on this subject:
Individuals or HUF whose accounts are not required to be audited for tax purposes must deduct TDS on payments to contractors, professionals.
This section will be applicable when threshold limit exceeds Rs. 50 Lakhs in a financial year.
Payee can be any person i.e. a company, an individual, or a firm etc. who has provided any service (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.
The definition of work as per the section is given below:
“work” shall include
(a) advertising;
(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;
(d) catering;
(e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer,
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.
As you can see that the definition of work is inclusive, we can say that the scope of work as per this section is very vide. The above list is not exhaustive and there could be other contractual payments which could get covered in this section. It is also important to note that the contract need not be in writing. Even a payment in pursuance of an oral contract would get covered provided it is in excess of the threshold as prescribed.
Also professional services have been defined as follows:
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.
Also some of the profession specifically covered by Section 44AA are also covered by this section. They are:
Some of the normal payments for a common man that would be scrutinized by this section are:
Lets understand this with an example:
For Example Mr. Deepak engaged a contractor Mr A for construction of his house to whom he paid Rs. 80 lakhs on January 2, 2020 and Mr B for Interior Decoration, to whom he paid Rs. 20 lakhs on March 15, 2020. So TDS will be deducted as follows:
| Particular | Amount paid | Section | Rate of Deduction | Amount of TDS |
| Construction | 80,00,000 | 194M | 5% | 4,00,000 |
| Interior Decoration | 20,00,000 | No TDS to be Deducted as value is less than 50 Lakhs | ||
The rate at which the tax has to be deducted is 5% u/s 194M. Payee has request for lower tax deduction rate by getting lower tax deduction certificate.
As per Rule 30 of the Income-tax Rules 1962 (the Rules), tax deducted from payment made in the month of March has to be deposited by April 30 and in all other cases on or before seven days from the end of the month in which the deduction is made.
No, TAN is not required for deducting TDS us 194M. Here PAN of Payer and Payee will be linked for the purpose of TDS.
As told earlier, since PAN of Payer and Payee will be linked for the purpose of TDS, Credit of TDS will be reflected in 26AS and thus payee can take credit.
Due date of deduction of TDS US 194M is date of payment or credit in accounts, which ever is earlier.
| Penalty for non deduction of TDS US 194M | Interest @ 1% will be applicable |
| Penalty for non payment of TDS US 194M | Interest @ 1.5% will be applicable |
Penalty for late filing of Return of TDS under this section is Rs. 200 per day which can increase upto amount of TDS. Also non-compliance can lead to prosecution as well.
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