Section 194M of Income Tax Act, 1961

What is section 194M?

An individual and/or Hindu undivided family (HUF) has to deduct tax at source under Section 194M from payment made to resident contractor or professional in respect of the following cases:

• Payment made for services received for business or profession if payer is not subjected to tax audit u/s 44AB(a)/(b)
• Payment made for services received exclusively for personal purposes

S. No.	Particulars	Description
1	Who is this applicable to?	Any person, Individual or HUF, other than those who are not required to deduct tax under section 194C, 194H or 194M
2	Deductee	Any Resident
3	When is it applicable?	When the aggregate value of such payments exceeds INR 50 lakhs during the financial year
4	What is the nature of work performed?	Payment should be made for: carrying out any work in pursuance of contractFees for professional services provided,  Commission (other than insurance commission U/S 194D) or brokerage
5	Rate of Tax	TDS rate – 5% TDS rate -20%,In case the deductee does not provide PAN
6	When should the tax be deducted?	At the time credit of such sum to the account of the payee or at the time of payment whichever is earlier

Type of payments covered under this section

Payment should be for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract or by way of fees for professional services or by way of commission or brokerage during the financial year

For the purposes of this section—

• “Contract” shall include sub-contract;
• “commission or brokerage” shall include any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities;
• “Professional services” means services rendered by a person in the course of carrying on a
  • Legal,
  • medical,
  • engineering,
  • architectural profession
  • the profession of accountancy
  • technical consultancy
  • interior decoration
  • or such other profession as may be notified by the board
• The expression, “work” would include:
• advertising;
• broadcasting and telecasting including production of programmes for such broadcasting or telecasting;
• carriage of goods or passengers by any mode of transport other than by railways;
• catering;
  
  

Threshold limit of TDS under section 194M              

The threshold limit of Rs.50 lakhs is based on individual nature of work performed and not aggregate of nature of works performed. Thus, the limit of Rs.50 lakhs should be calculated to each party independently.

Example:-

1. Suppose Mr.X, a salaried employee, makes the following payments during the FY 21-22 :-
2. Paid 75 Lakhs to contractor on 30^th June, 2021 for construction of building.
3. Paid 50 Lakhs to Interior Decorator on 1^st February, 2022
4. Paid 20 Lakhs to Painter on 1^st February, 2022.

What is the amount of TDS to be deducted by Mr.X?

Tax to be deducted by Mr.X is as follows:-

Particulars	Amount	Rate	Amount of TDS
Construction	75,00,000	5%	3,75,000
Interior work	50,00,000	5%	2,50,000
Painting  (Note1)	20,00,000	5%	–

Note :

Since, the amount paid to painting is less than Rs.50,00,000 , no tax is required to be deducted.

• Suppose in the above example the payment for the construction contract is made on the following dates :

Date	Financial year	Amount paid
18.05.2022	2022-2023	35,00,000
01.04.2023	2023-2024	40,00,000

What is the amount of TDS to be deducted by Mr.X?

As per section 194M, tax has to be deducted at source where the amount credited or paid to a contractor exceeds Rs.50 lakhs in aggregate during the financial year.

In the given case, since the aggregate amount paid to the contractor during the Financial year 2022-2023 is less than Rs. 50Lakhs, i.e. 35 lakhs he is not liable to deduct TDS u/194M.

FAQS

1. What is the time limit for depositing the TDS to the credit of the Central Government? Is so

TDS shall be paid within a period of 30 days from the end of the month in which deduction is made.

• I am an Individual, do I require to procure TAN to report the TDS under this section?

The Individuals or HUFs can deposit the tax deducted using their PAN and shall not be required to obtain TAN.

• How to file TDS returns without having a TAN number?

FORM no.26QD “Challan-cum statement” is to be filed within 30 days from the end of the month in which TDS is deducted.

• Whether any certificate needs to be given to the deductee? If so, what is the time limit?

The person who deducts tax under section 194M shall furnish a certificate under Form no. 16D to the deductee within 15 days of the due date of furnishing the challan cum statement in Form 26QD.