In the Union Budget 2019, various changes have been proposed and a new section has been introduced i.e Section 194M which relates to the total amount paid to a resident individual, for carrying out any contractual work or providing any professional service, in a financial year exceeding Rs 50,00,000.
What is Section 194M?
An Individual or HUF has to deduct tax at source under Section 194M if the total amount paid to a resident individual exceeds INR 50,00,000.
Section 194M of the Income Tax Act covers various payments such as the Payment of commission (not being insurance commission), brokerage, contractual fee, and the professional fee to a resident person by an individual or a HUF who is not liable to tax audit as per Income Tax Act.
Further, Individuals and HUFs not liable to deduct TDS u/s 194C, 194H, or 194J have to deduct TDS under section 194M.
Analysis of 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 the 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.
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 under Section 194M
The rate of TDS u/s 194M will be 5% if the total amount paid to a resident exceeds INR 50,00,000 in a particular financial year. In case the deductee doesn’t furnish their PAN the rate of TDS will be 20%.
When to Deduct TDS under Section 194M?
TDS shall be deducted at the time of credit of such sum or at the time of payment of such sum in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier.
TDS Return
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 30 days from the end of the month in which the deduction is made and shall be accompanied by a challan-cum-statement in Form No. 26QD.
TDS Certificate
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 the payee within 15 days from the due date of the furnishing statement in Form 26QD. The individual can download Form 16D from the TRACES portal.
FAQs
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.
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%.
If the individual is covered under 44AD and has a TAN number then they can deduct TDS u/s 194C, If the individual is covered under 44Ad but doesn’t have a TAN number then they can deduct TDS u/s 194M.
Hey @Dia_malhotra
As per section 194A, TDS on interest other than interest on securities is required to be deducted by any person other than Individual or HUF at the rate of 10%, when paid to a resident. No surcharge, education cess or SHEC shall be added to the above rate.
Hope this helps!
Hey @HarishMehta
TDS u/s 194J needs to be deducted by deductor other than an individual or a HUF, @ 10% on any amount paid or payable to any which is in excess of INR 30,000 as:
Hope this helps!
Hello @the_AK,
Against gross income, you can claim business expenses that you have incurred for earning that income. So you can claim this service fee as a business expense from the gross income received by you.
Hope this helps!
Hey @Bharti_Vasvani can you please help here?
Hello @Anuj_Agarwal,
TDS will be deducted by the company when the interest is actually paid on the securities, so at that time whoever is the owner of such security shall receive the interest and can claim credit of interest.
Hope this helps!
Hey @Anuj_Agarwal,
You can check out this article for more clarity:
Hope this helps!
I have respectable salary income and 1000 insurance commission…ie old commission…not claiming any expenses…can i show it as other income in itr1 or have to file itr 3
Hi @Shivam_B
If you have income from salary and income from insurance commission (business income), then you will be required to file ITR 3.
Itr 3 is so big…have to pay heavy charges…for filing…will it be defective if i do so ie reporting 1000 as other income in itr1 along with salary income…have closed down the insirance work since yesrs…i even contacted commssiom giving broker and closed my commission account…still they are showing in 26as wheress i am not receiving in real
Hi @Shivam_B
As per the recent utilities, ITD gives you the option to select only the schedules applicable to you while filing ITR.
Thus, you are not required to go through the entire ITR 3 form. You can also prepare and file ITR on Quicko, where you can upload form 16 and add commission income under the head “Business & Profession” and file ITR 3, without any charges as Quicko is a DIY platform helping individuals to file taxes.