Section 194M : TDS on Payment to Resident

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Maharshi Shah

Form 16D
Form 26QD
HUF
Indian Resident
Section 194M

Tax Deducted at Source (TDS) is an indirect method of collecting Income Tax. TDS is based on the principle of “Pay as you earn” which is beneficial for both Government as well as taxpayer.

Further, Tax Deducted at Source (TDS) is a concept where a person making payment of specified nature is liable to deduct tax at a prescribed rate and also deposit the same with the Government. The TDS rates applicable under different sections & subsection are between 1%- 30%.

Further, Individuals and HUFs not liable to deduct TDS u/s 194C, 194H or 194J have to deduct TDS u/s 194M.

Section 194M covers various payments such as the Payment of commission (not being insurance commission), brokerage, contractual fee, the professional fee to a resident person by an individual or a HUF who are not liable to tax audit as per Income Tax Act.

Understanding Section 194M

The Finance Minister announced the introduction of Section 194M, regarding tax deduction at source from any money which an individual or HUF pays to a resident contractor when the services are provided for personal use. Priorly, individuals and HUFs were not liable to deduct TDS for personal or business-related payments.

Hence, in such cases, the books of accounts are to be audited if the turnover of business exceeds 1 Cr. Also, the books of accounts have to be audited even if the total turnover of a profession exceeds 50 Lakhs. This means Section 194M applies to both, personal and business-related payments.

Therefore, individuals and HUFs have to deduct TDS u/s 194C and 194J if the books of accounts have to be audited. Moreover, TDS on commission or brokerage is deducted under section 194H. Furthermore, payments to non-residents are not covered under this section.

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Residential Status Calculator for Income Tax. Taxability in India depends on residential status. Know your residential status from Resident, NRI, Resident but Not Ordinarily Resident(RNOR)
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Residential Status Calculator
Residential Status Calculator for Income Tax. Taxability in India depends on residential status. Know your residential status from Resident, NRI, Resident but Not Ordinarily Resident(RNOR)
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The deductors (Individuals & HUF) do not require a TAN(Tax Account Number) to deduct tax u/s 194M. They can do so by quoting their PAN to the government.

Rate of TDS u/s 194M

The TDS is deducted u/s 194M if the turnover of the business or profession exceeds the amount of INR 1 Cr or INR 50 Lakhs respectively in a financial year. The TDS will be deducted at a rate of 5%. TDS will be deducted at a rate of 20% if the deductee does not possess a PAN card.

The CBDT has notified that any sum deducted under section 194M shall be paid to the credit of the Central Government within a period of thirty days from the end of the month in which the deduction is made and shall be accompanied with a challan-cum-statement in Form No. 26QD.

Hence, every person that deducts TDS u/s 194M is responsible to furnish the certificate of deduction of tax at source in Form 16D. TDS certificate has to be furnished to payee within 15 days from due date of furnishing statement in Form 26QD. The individual can download Form 16D from the TRACES portal.

FAQs

What is the time limit on depositing TDS?

The due dates for the payment of the deducted TDS are on or before the 7th of next month. It means if the deductor has deducted tax from payments in the month of July, then he has to pay the TDS on or before the 7th of August.

Who has to deduct TDS u/s 194M?

An individual or HUF, who has to make payment to a resident for a contract work completed or any professional service provided, will have to deduct tax at source u/s 194M.
As per the Union Budget 2019, any individual/HUF paying any sum to a resident, for carrying out any work (including the supply of labor) under any contract or by way of fees for professional services rendered during the financial year, exceeding INR 50,00,000 in a year will have to deduct TDS at the rate of 5%.

What is a tax audit report?

The indirect tax is implied on the income received from financial products. These financial products can be mentioned as:
> Interest received on fixed deposits,
> Incentives from the employer,
> Commission’s payments,
> Dividends on bonds,
> Sale/purchase or rent of any immovable property and money earned as lottery

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