The Union Budget 2019 for the FY 2019-2020 was presented on 5 July 2019. The Budget proposed various changes in the existing sections of the income tax laws. Along with the changes, this Budget also introduced some new Sections for TDS such as 194M and 194N.
194M – TDS on payment to resident contractors and professionals
194N – TDS on cash withdrawal in excess of Rs 1 crore
Let’s discuss section 194M in detail:
- What is Section 194M?
- Reason for introduction of TDS under Section 194M
- What is the meaning of ‘work’, ‘contract’, and ‘professional services’ in Section 194M?
- Who has to deduct TDS u/s 194M?
- When can one deduct tax at source under 194M?
- Rate of TDS under Section 194M
- What is the time limit of depositing TDS?
1. What is Section 194M?
2. Reason for the introduction of Section 194M
3. What is the meaning of ‘work’, ‘contract’, and ‘professional services’ in Section 194M?
Work: The expression, “work” in this section would include:
a. Advertising
b. Broadcasting and telecasting including production of programs for such broadcasting or telecasting.
c. Carriage of goods and passengers by any mode of transportation, other than railways.
d. Catering.
e. Manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer. But does not include manufacturing or supplying a product according to the requirements or specifications of a customer by using material purchased from a person, other than such a customer.
Professional services: The phrase, professional services in this section would include:
1. Professional fees
2. Fees for technical services
3. Remuneration paid to directors excluding salary (For example, sitting fees to attend board meetings)
4. Royalty
5. Payments in the nature of non-compete fees (i.e., fees paid to not carry on any business or profession for a specified time and within certain geographical boundaries) or fees paid to not share any technical knowledge or know-how.
Contract: This expression includes sub-contract.
4. Who has to deduct TDS u/s 194M?
5. When can one deduct tax at source under 194M?
TDS amount will be deducted on the earlier of the following dates:
1. At the time of credit of the amount.
2. At the time of payment by cash or by the issue of a cheque or draft.
6. Rate of TDS under Section 194M
TDS at 5% will be deducted under 194M if the total amount paid to a resident exceeds Rs 50,00,000 in a particular financial year. The TDS rate is 3.75% for transactions from 14 May 2020 until 31 March 2021
In case the PAN of the deductee is not available, then TDS will be deducted at 20%.
7. What is the time limit on depositing TDS?
a. When any payment is made by or on behalf of the government – The TDS amount will have to be paid to the department on the day of the payment.
b. Where any payment is made by any other person apart from the government:
The TDS will have to be paid:
i. If the amount is paid in March – on or before April 30 of the next financial year. For example, if the amount has been paid in March 2020, then the TDS will be deposited to the department by 30 April 2020.
ii. In any other month – within seven days from the end of the month in which the tax deduction is made. For example, if the amount has been paid in the month of September 2019, then the TDS will be deposited to the department by 7 October 2019.
