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FinanceGSTTax

Section 194M- TDS summary on payment to resident contractors and professionals

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A lot of modifications have been noted in the Finance Act recently. In particular, in the tax area –income tax or GST. Some parts are modified and some are launched lately. Let’s see one of the 194 M section of the freshly launched TDS.

Q. What is section 194M?

This section was implemented to provide a 5% TDS tax on the amount paid or credited in a year due to contract job or professional service in a financial year above Rs 50 lakh.Such people and HUF did not need to audit their account books.

By citing his or her PAN only, the person or HUFs who have to deduct tax can pay the government the tax. Not needed for TDS deduction to obtain a tax deduction account number (TAN).

Q. To whom this section is applicable?

This section is applicable to

  • Individual
  • HUF
  • Non – Audited Cases

But it’s not applicable to those who belongs to following category-

  • Audited cases
  • Who are covered under the provisions of section 194C or 194J
  • Body of Individuals
  • Association of Persons
  • Payments to non-residents

Q. When can one deduct TDS?

TDS amount will be deducted on the earlier of the following dates:

  1. At the time of credit of the amount.
  2. At the time of payment by cash or by the issue of cheque or draft.

Q. Why this section introduced?

Following are the reasons behind introduction of this section:

  • This section applies to both personal as well as business related payments. This means tax will be deducted at source from any money paid by an individual or HUF to a resident contractor.
  • Previously, there was no liability on an individual or HUF to deduct tax at source in the situations mentioned above.
  • Also, the individuals or HUFs carrying business or profession which are not subjected to any audit were also not deducting any tax at source, even when the payment was made for the purpose of business or profession exceeds the specified limit.
  • A major amount of payment made for contractual works and professional fee was escaping the levy of TDS because of this exemption, which was creating a scope for tax evasion.

Q. What is the meaning of ‘work’, ‘contract’, and ‘professional services’ under this Section?

Work:  “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 it excludes manufacturing or supplying a product according to the 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 fee
  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 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.

Q-What is the Rate of TDS under this section? 

TDS at 5% will be deducted only if the total amount paid to a resident exceeds Rs 50,00,000 in a particular financial year.

In case the PAN of the deductee is not available, then 20% rate of TDS is deducted.

Q. What is Due Date of filing of TDS returns? 

The deadline to file return for the 4 quarters are :

S.NOMonthDate
1.April-June31st of July
2.July-September31st of October
3.October-December31st of January
4.January-March31st of May
For any question visit us at forum

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