TDS Section 194M

Section 194M – TDS

Section 194M – TDS

The 2019 budget has proposed a new  Section 194M in TDS, to deduct tax for the services availed from resident contractors or professionals by an individual or HUF. Section 194M will take effect from 1st September 2019.

Purpose of Section 194M

To widen and formulate a deep structure in income tax regulations, to increase financial accounting liability among individuals.

According to Section 194C and Section 194J if a payment is made for the services received for personal purposes or if a payment is made for the services for business or profession under the Section 44AB(a)/44AB(b), the subject is exempted from a tax audit.

Upon various reports of misuse of the Section 194C and Section 194J, Government of India (GoI) added Section 194M to monitor the high-value payments and transaction of contractors and professionals.

To know more about TDS rates, click here.

Section 194M

Section 194M proposes that any individual or HUF who avails contractual services or professional services, the payer should deduct TDS at the rate of 5% if the total payable amount exceeds Rs. 50 lakh during the current financial year. This section was introduced to increase tax regularity and financial accounting liability among individuals of HUF.

Section 194M is relevant when the category of payments fall under Section 194C, 194H or 194J when the account transactions are audited. It is not applicable for Association of Persons (AOPs), Body of individuals (BOIs), non-residents and excludes other services or payments such as commission, interest and salary.

The deducted tax can be deposited by using Permanent Account Number (PAN) or Tax Deduction and Collection Account Number (TAN). However, PAN is applicable if TAN is not available.

If the TDS amount does not meet the requirements of Section 194M, Section 194C and Section 194J shall be applicable for contracts or professional services.

Note: Under Sub section 4 of Section 194C the individual or HUF shall not deduct Income Tax for the services availed from the contractors or professionals.

The deduction of TDS shall be applied for the following modes of payments:

1) Payments to resident contractors or professionals of over Rs.50 lakh

When an individual or HUF receive services from contractors or professionals and if the payable amount exceeds Rs. 50 lakh for the current financial year, the payer shall deduct TDS at the rate of 5%. The types of payments include:

  • Land development
  • Construction of Houses
  • Marriage expenses such as catering, flower decoration, contracts for transportation
  • Event Management expenses
  • Advocate fee
  • Gardening
  • Property maintenance services
  • Asset maintenance services
  • Harvesting corps
  • Payments related to healthcare and hospitals

2) Payments made for parking charges, maintenance charges during purchase of the house

TDS shall be deducted by the concerned payer if the total payable amount exceeds Rs. 50 lakh. The payments include buying a house, car parking fees, maintenance fees, advance fees, electricity and water fees and club membership fees.

Section 194M implies that TDS should be deducted on the payment made to buy the house.

3) Paying more than Rs. 50,000 as rent per month  

TDS can be deducted if the rent is paid more than Rs. 50,000 per month. The TDS shall be deducted at the rate of 5% in the current financial year as tax.

The tenant shall be subjected to a penalty of 1% interest per month if the TDS is not deducted and it can extend up to 1.5% per month.

Explanation of the terms: “Contract”, “Professional Services”, “Work”

Contract: Subjected under the clause (iii) of the Explanation to the section 194C

To know about the works contract, click here.

Professional Services: Subjected under the clause (a) of the Explanation to the section 194J

Professional Services include:

  • Technical services
  • Professional fees
  • Royalty
  • Non-compete fees
  • Remuneration paid for directors (excluding salary)

To know about the rate of TDS on Professional and Technical Services, click here.

Work: Subjected under the clause (iv) of the Explanation to the section 194C

  • Catering
  • Manufacturing and distribution of products upon specific requirements (does not include product purchased from a person other than a customer)
  • Advertising
  • Broadcasting and telecasting
  • Use of goods and passengers transportation (other than railways)

Mode of depositing TDS

TDS can be deducted when the amount is credited or during the time when a payment is made by cash, cheque or draft. The tenant shall deduct the amount only once a year.

For Tenants

Form 26QC: If the tenant pays rent of more than Rs.50,000 per month, the tenant shall deduct and deposit the TDS though Form 26QC, challan-cum-statement, under the Section 194IB. The tenant shall deposit the TDS within 15 days of filing the form at RBI, SBI or any authorised bank.

Form 16C: Upon deduction of TDS on rent, the tenant shall deposit the TDS within 15 days of filing the Form 26QC. The deposit must be furnished in Form 16C and authorised by the concerned bank under the Section 194IB. Form 16C shall be then provided to the landlord as a proof of deposit.

TDS Certificate with Benefits: Section 197 of the Income Tax Act, 1961 provides nil deduction of the tax or lower rate of tax. To avail this benefit the concerned landlord or owner of the property shall make an application with fee to the TDS Assessing Officer under section 194M.

For purchase of immovable property

Form 26QB: Form 26QB is a challan-cum-statement form and shall be used for deducting TDS when a resident or non-resident buy immovable property (does not include agricultural land) of a value more than Rs. 50 lakhs (payment made by cash, cheque or draft). The form should be filled within seven days by the end of the month.

Form 16B: The deducted amount should be furnished in the Form 16B by the deductor and should be provided to the seller within 15 from the due date of furnishing Form 26QB.

TDS deposits can be made using the following portal, https://www.tdscpc.gov.in/app/login.xhtml

Due Date for Filing TDS Returns

The deadline to file return for the quarter of

S.NoMonthDate
1April-June31st of July
2July-September31st of October
3October-December31st of January
4January-March31st of May

Latest Updates

As per notification on 19th December 2019, the due date for submitting Form 26QD and Form 16D under Section 194M is extended.

  • Form 26QD – Challan-cum-statement for the months of September 2019 and October 2019, the original due date was 31st October 2019 and 30th November 2019 respectively which is extended till 31st December 2019.
  • Form 16D – Certificate of deduction of tax for the months of September 2019 and October 2019 is extended up to 15th January 2020.

The official notification can be accessed below:

Section-194M-circular-31-2019

To know more about on how to apply for TDS Certificate with benefits, click here.

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