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Section-194M-TDS-on-payments-to-Contractors-and-Professionals

 

Section 194M-TDS on payments to Contractors and Professionals

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Introduction-

Union Budget 2019, the Finance Minister has proposed a new Section 194M, which requires an individual or an HUF, to deduct TDS @ 5%, where they make payment exceeding Rs. 50 Lakh in a year to a contractor or to a professional even for personal work w.e.f. 01.09.2019.

However, in order to reduce the compliance burden, it has been proposed that such individuals or HUFs shall be able to deposit the tax deducted using their Permanent Account Number (PAN) and shall not be required to obtain Tax deduction Account Number (TAN).

   
Applicability of Section 194M-
  • It is applicable w.e.f. 01st September 2019 onwards. TDS will be deducted on any payment made after this date even if the contract existed before, provided the payment exceeds Rs 50 lakh.
  • It is only applicable to an Individuals, HUF’s and Non Audited Cases.
  • It is not applicable to an individuals or a HUF’s who are required to deduct TDS  under Section 194C or Section 194J, means an individuals or HUF who are liable to tax audit.
Rate of TDS-

If the payment exceeds Rs. 50 lakh in a year the TDS will be deducted @ 5% up to 13.05.2020, thereafter w.e.f 14.05.2020 to 31.03.2021 the rate of TDS will be 3.75%

   
Time of Deduction-

TDS will be deducted at the time of credit of such amount or at the time of payment (whether in cash or by issue of a cheque or draft or by any other mode), whichever is earlier.

   
Meaning of ‘work’, ‘professional services’ and ‘contract’ under Section 194M-

Work- The expression, “work” in this section would include-

  1. Advertising
  2. Broadcasting and telecasting including production of programs for such broadcasting or telecasting.
  3. Carriage of goods and passengers by any mode of transportation, other than railways.
  4. Catering.
  5. 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 requirements or specifications of a customer by using material purchased from a person, other than such a customer.
 
Professional services- The phrase, professional services in this section would include:
  1. Professional fees
  2. Fees for technical services
  3. Remuneration paid to directors excluding salary (For example, sitting fees to attend board meetings)
  4. Royalty
  5. Payments in the nature of non-compete fees (i.e., fees paid to not carry on any business or profession for a specified time and within certain geographical boundaries) or fees paid to not share any technical knowledge or know-how.
 
Contract- This expression includes sub-contract.
 



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