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TDS on Payment to Resident Contractor and Professional (Section 194M)

Written by: ANKUR Posted on: 5 February, 2023

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Section 194M
TDS on Payment to Resident Contractor and Professional

Applicability and rate of TDS

Section 194M provides for deduction of tax at source 5%, by an individual or a HUF responsible for paying any sum during the financial year to any resident for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract; or by way of commission (not being insurance commission referred to in section 194D) or brokerage, or by way of fees for professional services.

It may be noted that only individuals and HUFs (other than those who are required to deduct income-tax as per the provisions of section 194C or 194H or 194J) are required to deduct tax in respect of the above sums payable during the financial year to a resident.

Time of deduction

The tax should be deducted at the time of credit of such sum or at the time of payment of such sum, whichever is earlier.

Threshold limit

No tax is required to be deducted where such sum or, as the case may be, aggregate amount of such sums credited or paid to a resident during the financial year does not exceed ₹ 50,00,000.

Non-applicability of TDS under section 194M

An individual or a Hindu undivided family is not liable to deduct tax at source under section 194M, if

They are required to deduct tax at source u/s 194C for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract i.e., an individual or a HUF whose total sales, gross receipts or turnover from the business or profession carried on by him exceeds 1 crore in case of business and ₹50 lakhs in case of profession during the immediately preceding financial year and such amount is not exclusively credited or paid for personal purposes of such individual or HUF.

They are required to deduct tax at source u/s 194H on commission (not being insurance commission referred to in section 194D) or brokerage i.e., an individual or a HUF whose total sales, gross receipts or turnover from the business or profession carried on by him exceeds ₹1 crore in case of business and ₹50 lakhs in case of profession during the immediately preceding financial year.

They are required to deduct tax at source u/s 194J on fees for professional services i.e., an individual or a HUF whose total sales, gross receipts or turnover from the business or profession carried on by him exceeds ₹1 crore in case of business and ₹50 lakhs in case of profession during the immediately preceding financial year and such amount is not exclusively credited or paid for personal purposes of such individual or HUF.

No requirement to obtain TAN

The provisions of section 203A containing the requirement of obtaining Tax deduction account number (TAN) shall not apply to the person required to deduct tax in accordance with the provisions of section 194M.

Time and mode of payment of tax deducted at source under section 194-IA, 194-IB and 194M to the credit of Central Government, furnishing challan-cum-statement and TDS Certificate [Rules 30, 31A & 31].

Such sum deducted u/s 194-IA, 194-IB and 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. 26QB, 26QC and 26QD, respectively [Rule 30].

The amount so deducted has to be deposited to the credit of the Central Government by electronic remittance within the above mentioned time limit, into RBI, SBI or any authorized bank [Rule 30].

Every person responsible for deduction of tax u/s 194-IA, 194-IB and 194M shall also furnish to the PDGIT (Systems) (in case of section 194-IB and 194M) or DGIT (Systems) or any person authorized by them, a challan-cum-statement in Form No. 26QB, 26QC and 26QD, respectively, electronically within 30 days from the end of the month in which the deduction is made [Rule 31A].

Every person responsible for deduction of tax u/s 194-IA, 194-IB and 194M shall furnish the TDS certificate in Form No. 16B, 16C and 16D, respectively, to the payee within 15 days from the due date for furnishing the challan-cum-statement in Form No. 26QB, 26QC and 26QD, respectively, under Rule 31A, after generating and downloading the same from the web portal specified by the PDGIT (Systems) (in case of section 194-IB and 194M) or DGIT (Systems) or the person authorized by him [Rule 31].

Note - For the meaning of the terms "Work", "professional service" and Commission or brokerage" refer section payment of contractors and sub contractors section 194C, Fee for professional or technical services section 194J, Commission or brokerage section 194H,

ILLUSTRATION 1

Examine whether TDS provisions would be attracted in the following cases, and if so, under which section. Also, specify the rate of TDS applicable in each case. Assume that all payments are made to residents.

S.No.	Particulars of the payer	Nature of payment	Aggregate of payments made in the F.Y.2021-22
1.	Mr. Santosh, an individual carrying on retail business with turnover of ₹2.5 crores in the P.Y.2020-21	Contract Payment for repair of residential house.	₹5 lakhs
		Payment of commission to Mr. Rohit for business purposes.	₹80,000
2.	Mr. Roshan, a wholesale trader whose turnover was ₹95 lakhs in P.Y. 2020-21.	Contract Payment for reconstruction of residential house (made during the period January-March, 2022)	₹20 lakhs in January, 2022, ₹15 lakhs in Feb 2022 and ₹20 lakhs in March 2022.
3.	Mr. Sanoj, a salaried individual	Payment of brokerage for buying a residential house in March, 2022.	₹51 lakhs
4.	Mr. Nandan, a pensioner	Contract payment made during October-November 2021 for reconstruction of residential house.	₹48 lakhs

SOLUTION -

S.No.	Particulars of the payer	Nature of payment	Aggregate of payments in the FY 21-22	Whether TDS provisions are attracted?
1.	Mr.Santosh, an individual carrying on retail business with turnover of ₹ 2.5 crores in the P.Y.2020-21	Contract Payment for repair of residential house	₹ 5 lakhs	No; TDS under section 194C is not attracted since the payment is for personal purpose. TDS under section 194M is not attracted as aggregate of contract payment to the payee in the P.Y.2021-22 does not exceed ₹ 50 lakhs.
		Payment of commission to Mr. Rohit for business purposes	₹ 80,000	Yes, u/s 194H, since the payment exceeds ₹ 15,000, and Mr. Santosh’s turnover exceeds from business ₹ 1 crore in the P.Y.2020-21.
2.	Mr. Roshan, a wholesale trader whose turnover was ₹95 lakhs in P.Y.2020-21	Contract Payment for reconstruction of residential house	₹ 55 lakhs	Yes, under section 194M, since the aggregate of payments (i.e.,₹ 55 lakhs) exceed ₹ 50 lakhs. Since, his turnover from business does not exceed ₹ 1 crore in the P.Y.2020-21, TDS provisions under section 194C are not attracted in respect of payments made in the P.Y.2021-22.
3.	Mr. Sanoj, a salaried individual	Payment of brokerage for buying a residential house	₹ 51 lakhs	Yes, under section 194M, since the payment of ₹ 51 lakhs made in March 2022 exceeds the threshold of ₹ 50 lakhs. Since Mr. Sanoj is a salaried individual, the provisions of section 194H are not applicable in this case.
4.	Mr. Nandan, a pensioner	Contract payment for reconstruction of residential house	₹ 48 lakhs	TDS provisions under section 194C are not attracted since Mr. Nandan is a pensioner. TDS provisions under section 194M are also not applicable in this case, since the payment of ₹ 48 lakhs does not exceed the threshold of ₹ 50 lakhs.

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ANKUR

Direct Tax Expert having more than 10 years of Experience