Compliances of TDS under section 194M

• Taxation
• ||
• December 23, 2019

The Union Budget 2019 for the FY 2019-2020 presented on 5 July 2019, inter-alia, introduced section 194M of the Income Tax Act. This section mandates every Individual / HUF, who are making payment for the use of service of a contractor or a professional but not required to get their books of accounts audited, to deduct tax at source.

Intent behind introducing this section
Prior to the amendment an individual / HUF covered under section 44AB i.e. who are required to get their books of accounts audited and were making payment to a contractor or a professional were required to deduct TDS on the amount paid if such payment exceeds the specified statutory limit. But, with the applicability of this section the requirement of deducting TDS on payment made to a contractor or a professional has been imposed on individuals / HUF who are not required to get their books of accounts audited.

Applicability

• Individuals / HUF making payment for the use of services by a contractor or a professional who are not required to get their books of accounts audited during the financial year i.e. their total turnover in case of business or gross receipts in case of profession does not exceed INR 1 crore and INR 50 lakhs respectively, and
• When the total amount paid to a resident individual, for carrying out any contractual work or providing any professional service, in a financial year exceeds INR 50 lakhs.

Rate of TDS
Any individual  /HUF paying any sum to a resident, for carrying out any under any contract or by way of fees for professional services rendered during the financial year, exceeding INR 50 lakhs in a year will have to deduct TDS at 5%. In case PAN is not available of the deductee, TDS shall be deducted at the rate of 20% instead of 5%.

When can one deduct tax at source under 194M?
TDS amount will be deducted earlier of the following dates:

• At the time of credit of the amount; or
• At the time of payment by cash or by the issue of a cheque or draft.

Time limit of depositing TDS
The amount of TDS deducted shall be deposited to the credit of government within the time specified mentioned below:

• If the amount is deducted in the month of March then the same has to be deposited to the credit of government on or before April 30 of the next financial year.
• In any other month the amount has to be deposited to the credit of government within seven days from the end of the month in which the tax deduction is made.

If the amount of TDS is not deducted or the amount of TDS is deducted but not deposited to the credit of government then such deductor shall pay interest at the specified rates.

If you have question while making any payment to a contractor or professional regarding the applicability and implication of the section or require any assistance in complying with the TDS provisions, our team of experts can assist you.

We can also assist you in setting up your business in India, accounting, bookkeeping, payroll, auditing, taxation, secretarial compliances, and trademark registration, business structuring and advisory services. If you require any assistance in this regard, kindly click here