Section 194M : TDS on Payment to Resident

What is 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.

As per section 206AA if the deductee fails to provide the PAN to deductor then he would suffer deduction at higher of the rates of deduction as: At the rate specified in the relevant provision of the Act, or, At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20), or At the rate of 20%
Tip
As per section 206AA if the deductee fails to provide the PAN to deductor then he would suffer deduction at higher of the rates of deduction as: At the rate specified in the relevant provision of the Act, or, At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019 for FY 2019-20), or At the rate of 20%

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.

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.

As per section 206AB, if the aggregate of TDS and TCS for deductee is INR 50000 or more in each of these two previous years and deductee has not filed the returns of income for two previous years immediately prior to the previous year in which tax is required to be deducted then he would suffer deduction at higher of the rates of deduction as: At twice the rate specified in the relevant provision of the Act; or At twice the rate or rates in force; or At the rate of 5%
Tip
As per section 206AB, if the aggregate of TDS and TCS for deductee is INR 50000 or more in each of these two previous years and deductee has not filed the returns of income for two previous years immediately prior to the previous year in which tax is required to be deducted then he would suffer deduction at higher of the rates of deduction as: At twice the rate specified in the relevant provision of the Act; or At twice the rate or rates in force; or At the rate of 5%

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

Section 80U: Deduction for Individuals with Disability

Deduction under setion 80U can be claimed by a Resident Individual with a disability. HUF cannot claim deduction u/s 80U if any of its members are suffering from a disability. This income tax deduction can be claimed at the time of filing ITR under Chapter VI-A.

Deduction under section 80U is not allowed for Financial Year 2020-21 if the taxpayer opts for the new tax regime
Tip
Deduction under section 80U is not allowed for Financial Year 2020-21 if the taxpayer opts for the new tax regime

Who is Eligible to Claim Deduction u/s 80U?

An individual suffering from any of the following disabilities is eligible to claim deduction u/s 80U:

  • Autism
  • Cerebral palsy
  • Blindness
  • Low vision
  • Leprosy cured
  • Hearing impairment
  • Locomotor disability
  • Mental retardation
  • Mental illness

One has to note that an individual will be considered disabled if he/she is suffering from a disability which is 40% or more but less than 80%. If a taxpayer is suffering from more than 80% disability then it will be termed as Severe Disability and the deductions will vary based on the severity of the disability.

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What are the Conditions to Claim Deduction u/s 80U?

  • The deduction must be claimed by a resident Indian
  • An individual should be independent. A dependant individual cannot claim this deduction on his disability
  • A copy of the certificate issued by medical authorities certifying the ‘person with a disability’ should be kept by an individual as proof
  • Unlike section 80DD, there is no condition of incurring expenses for such disability, in order to claim deduction u/s 80U
  • The certificate of disability that is provided by the Medical Authority has an expiry date. If the validity of the certificate expires within a financial year, deductions can be claimed by showing the expired certificate. However, one will need a new certificate for claiming deductions for the next financial year.
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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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Who is Considered as a Medical Authority?

Below mentioned are the medial authorities who are eligible to issue a disability certificate:

  • A neurologist with an MD in Neurology
  • Pediatric Neurologist in case of children
  • A civil surgeon or Cheif Medical Officer of a government hospital

How is the Deduction Calculated Under Section 80U?

Let us take an example in-order to understand the calculations better;

Ankit is an individual who is suffering from hearing impairment. He is suffering from a 40% disability. During FY 2018-19, he has earned a salary of INR 5,20,000. And he has obtained a certificate from the medical authority for his disability.

Solution

In the above case, Ankit can claim a deduction of INR 75,000. He can claim this deduction under chapter VI-A while filing his ITR.

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What is the Deduction Limit u/s 80U?

For FY 2018-19 deduction limit u/s 80U is as follows, a person with a disability is categorized into two parts:

  • Disabled Person: An individual suffering from at least 40% of disability.
  • Severely Disabled Person: An individual suffering from at least 80% of disability.
Category Deduction Amount
Disabled Person INR 75,000
Severely Disabled Person INR 1,25,000

ITR Form Applicable for Section 80U

The taxpayer can claim deductions u/s 80U while filing ITR if all the above-mentioned conditions are full-filled. Individuals/HUFs can claim 80U in any of the ITR forms, i.e, ITR 1ITR 2ITR 3, and ITR 4 depending upon their income sources. The due date for filing ITR is 31st July of the next FY if the tax audit is not applicable.

For FY 2019-20, due to COVID-19 the due date for filing ITR has been extended to 10th January 2021 for all taxpayer.
Tip
For FY 2019-20, due to COVID-19 the due date for filing ITR has been extended to 10th January 2021 for all taxpayer.

Supporting Documents

Along with the common documents such as Form 16, you only require the disability certificate issued by a medical authority to claim this deduction. However, in the case of illness such as autism and cerebral palsy, Form 10-IA additionally needs to be filled up.

FAQs

How to get certificate for claiming deduction u/s 80U?

Income Tax Rule 11A has prescribed the format of a certificate for claiming a deduction. You can download the certificate format from the Income Tax Department. You need to get this certificate from medical authorities. Any doctor who is notified by the central government to certify the disabilities can issue this certificate.

Do I have to incur expenses on treatment of disability, to claim deduction under 80U?

No. It is not necessary to incur any expenses to claim a deduction. You only have to obtain a certificate from medical authorities about your disability.

What are the documents required to claim deduction u/s 80U?

You should keep the certificate by the medical authority for your disability. Moreover for an illness like autism or cerebral palsy file Form 10-IA with IT Department.

Can an NRI claim deduction under section 80U?

No, deductions under section 80U are available only to residential individuals.

What is the difference between 80U and 80DD?

Both section 80U and 80DD are related to providing deductions to taxpayers with disability. However, the beneficiaries under each section are different. U/S 80U, it is the individual who is disabled can claim a deduction for oneself whereas u/s 80DD family members who are dependent on the individual who is suffering from disability can claim the deduction.

Can I claim deduction under section 80U and 80DD simultaniously?

No, a taxpayer cannot claim deduction under both the sections at the same time. If he/she is claiming a deduction u/s 80U then he cannot claim deduction u/s 80DD and vice a versa.

Do I have to submit medical reports and/or bills inorder to claim a deduction u/s 80U?

No, in order to claim deduction one does not need to submit medical reports or bills. However, a medical certificate is required to be submitted.