Section 194M–TDS on payment to resident contractors and professionals

What is Sec 194 M?

As per Finance Bill of 2019, Section 194M of the Income Tax Act, 1961 states that any Payments made to Resident Contractors and Professionals of value greater than Rs 50,00,000 with effect from September 1, 2019, will be taxed @ 5%. However if PAN is not available TDS will be deducted at the rate of 20%. Such tax will be deducted by the payer/ deductor at the time of making payment and amount so deducted should be deposited to the Government Account through any of the authorized bank branches.

However if they are required to get Books of Accounts audited TDS will be deducted under section 194C (TDS on payment to Contractors) or 194J (TDS on payment of Professional Services) or 194H (TDS on payment of Commission) as the case may be and the deductor will not be liable to deduct TDS under section 194M.

In brief following are the payments 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

Meaning of Work, Contract, and Professional Services under 194-M

 Work: The phrase work in this section includes

a. Advertising

b. Broadcasting and telecasting including production of programs for such broadcasting or telecasting.

c. Carriage of goods and passengers by any mode of transportation, other than 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 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:

a. Professional fees

b. Fees for technical services

c. Remuneration paid to directors excluding salary (For example, sitting fees to attend board meetings)

d. Royalty

e. 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.

Time limit for depositing TDS Deducted

a. When any payment is made by or on behalf of the government the TDS amount will have to be paid to the department on the day of the payment.

b. Where any payment is made by any other person apart from the government the TDS wil have to be paid as per following:

1. If the amount is paid in March – on or before April 30 of the next financial year.
2. ii. In any other month – within seven days from the end of the month in which the tax deduction is made.

Points to Remember before deducting TDS under Sec 194 M

• This section is not applicable to non residents.
• If the Individual /HUF are liable for Tax Audit then this section is not applicable.
• Lower TDS certificate can be taken under section 197 of the income tax act and submit Form 13 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.

Regards

Team Palankarta

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