{"id":1925,"date":"2019-09-23T16:24:04","date_gmt":"2019-09-23T10:54:04","guid":{"rendered":"https:\/\/aktassociates.com\/blog\/?p=1925"},"modified":"2020-01-11T18:35:44","modified_gmt":"2020-01-11T13:05:44","slug":"section-194m-tds-in-relation-contract-professional-services","status":"publish","type":"post","link":"https:\/\/aktassociates.com\/blog\/section-194m-tds-in-relation-contract-professional-services\/","title":{"rendered":"Section 194M: TDS in Relation to Contract Services and Professional Services"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >In this article, we will discuss about...<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #1e73be;color:#1e73be\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #1e73be;color:#1e73be\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/aktassociates.com\/blog\/section-194m-tds-in-relation-contract-professional-services\/#Budget_Introduction\" title=\"Budget Introduction\">Budget Introduction<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/aktassociates.com\/blog\/section-194m-tds-in-relation-contract-professional-services\/#Applicability_of_Section_194M\" title=\"Applicability of Section 194M\">Applicability of Section 194M<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/aktassociates.com\/blog\/section-194m-tds-in-relation-contract-professional-services\/#Meaning_of_Section_194M\" title=\"Meaning of Section 194M\">Meaning of Section 194M<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/aktassociates.com\/blog\/section-194m-tds-in-relation-contract-professional-services\/#Timing_for_the_deduction_of_TDS_under_this_section\" title=\"Timing for the deduction of TDS under this section\">Timing for the deduction of TDS under this section<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/aktassociates.com\/blog\/section-194m-tds-in-relation-contract-professional-services\/#Reason_to_bring_Section_194M_in_the_Act\" title=\"Reason to bring Section 194M in the Act\">Reason to bring Section 194M in the Act<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/aktassociates.com\/blog\/section-194m-tds-in-relation-contract-professional-services\/#No_need_of_Tax_deduction_Account_Number_TAN\" title=\"No need of Tax deduction Account Number (TAN)\">No need of Tax deduction Account Number (TAN)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/aktassociates.com\/blog\/section-194m-tds-in-relation-contract-professional-services\/#Case_Studies\" title=\"Case Studies\">Case Studies<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/aktassociates.com\/blog\/section-194m-tds-in-relation-contract-professional-services\/#Summary\" title=\"Summary\">Summary<\/a><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"Budget_Introduction\"><\/span><strong>Budget Introduction<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">\u00a0In every new budget, the government makes certain amendments in the present law to pull out the loophole or make certain additions in the law with the objective to increase the tax revenue in a transparent manner. With the view of the above, In Budget, the 2019 government has proposed a new section 194 M in the chapter of deduction of tax at source under <a href=\"https:\/\/aktassociates.com\/blog\/taxation-of-limited-liability-partnership\/\">Income Tax act<\/a>, 1961. Here also, the objective of the government to bring this section is to remove the loophole which was there before.\u00a0<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-1912 aligncenter\" src=\"https:\/\/aktassociates.com\/blog\/wp-content\/uploads\/2019\/09\/Section-194-M.png\" alt=\"Section 194 M\" width=\"700\" height=\"400\" srcset=\"https:\/\/aktassociates.com\/blog\/wp-content\/uploads\/2019\/09\/Section-194-M.png 700w, https:\/\/aktassociates.com\/blog\/wp-content\/uploads\/2019\/09\/Section-194-M-300x171.png 300w, https:\/\/aktassociates.com\/blog\/wp-content\/uploads\/2019\/09\/Section-194-M-20x11.png 20w\" sizes=\"(max-width: 700px) 100vw, 700px\" \/><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Applicability_of_Section_194M\"><\/span><b>Applicability of Section 194M<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">This Section shall be applicable from 01.09.2019.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Meaning_of_Section_194M\"><\/span><b>Meaning of Section 194M<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><strong>This section provides that\u00a0<\/strong><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Every Individual or HUF <\/span>(Other than those people who are liable for the deduction of TDS under section 194C and 194J)<span style=\"font-weight: 400;\">\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Shall deduct the TDS at the rate of <\/span><b>5%<\/b><span style=\"font-weight: 400;\"> on the sum, or the aggregate of sums, <\/span>paid or credited<span style=\"font-weight: 400;\"> in a year\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">On account of <\/span>contractual work or professional fees<span style=\"font-weight: 400;\">\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">If such sum, or aggregate of such sums, <\/span>exceeds fifty lakh rupees in a year<span style=\"font-weight: 400;\">.<\/span><\/li>\n<\/ul>\n<p><b>Note:<\/b><span style=\"font-weight: 400;\"> Individual or HUF shall deduct the TDS under section 194C or 194J, only when they were liable to get their accounts audited. Other than this case, all individual and HUF were required to deduct the TDS under section 194M if the payment were related to contractual work or Professional Fees.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In Simple words, This section shall not be applicable to the individual or HUF if they were required to deduct the TDS under section 194C or 194J.<\/span><\/p>\n<p><b>Note:<\/b><span style=\"font-weight: 400;\"> The meaning of contractual work and professional service under section 194M shall be the same as defined under section 194C and 194J.<\/span><\/p>\n<p><b>Note:<\/b><span style=\"font-weight: 400;\"> For the applicability of this section, the payee must be the individual.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Timing_for_the_deduction_of_TDS_under_this_section\"><\/span><b>Timing for the deduction of TDS under this section<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><strong>\u00a0The Individual and HUF shall be liable to deduct the TDS at the earlier of the following:<\/strong><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">When such sum has been credited or<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">At the time of the making of payment<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\"><strong>Note:<\/strong> Once the TDS has been deducted then the individual and HUF shall be required to deposit such TDS within 7 days from the end of the month in which they had deducted the TDS under section 194M.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Reason_to_bring_Section_194M_in_the_Act\"><\/span><b>Reason to bring Section 194M in the Act<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">\u00a0If in relation to contractual services and professional services, deduction of TDS has already been specified under section 194C for contractual work and 194J for Professional fees, then why this section was introduced.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Actually, before the application of this section, there was no liability on an individual or<a href=\"https:\/\/aktassociates.com\/blog\/hindu-undivided-family-taxability-benefits\/\"> Hindu undivided family (HUF)<\/a> to deduct TDS on any payment made to a resident contractor or professional when it is for personal use.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Also, if an individual or HUF is carrying on business or profession on which<\/span><a href=\"https:\/\/aktassociates.com\/blog\/tax-audit-under-section-44ab\/\"><span style=\"font-weight: 400;\"> TAX <\/span><\/a><span style=\"font-weight: 400;\"><a href=\"https:\/\/aktassociates.com\/blog\/tax-audit-under-section-44ab\/\">Audit<\/a> was not applicable then there was no obligation to them to deduct TDS on such payment to a resident, even if such payment is made for the purpose of business or profession.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">And due to this exemption, Individual and HUF were not required to deduct the TDS on the substantial amount in respect of contractual work or for professional service and it results in the loophole for possible tax evasion.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Hence, to plug this loophole, the government has proposed this section and from 01.09.2019, Individual and HUF are now required to deduct the TDS on such Payments or a credited amount if such amount exceeds Rs.50 Lakhs during the year.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"No_need_of_Tax_deduction_Account_Number_TAN\"><\/span><b>No need of Tax deduction Account Number (TAN)<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">However, It is also been taken care that this section is applicable for individual and HUF and it might be possible that they do not have the TAN number hence, in order to reduce the burden related to compliance of laws and regulations, it has been proposed that such individuals or HUFs shall be able to deposit such TDS using their Permanent Account Number (PAN) and they were not be required to obtain <a href=\"https:\/\/aktassociates.com\/blog\/form-49b-for-tan-application\/\">Tax deduction Account Number (TAN).<\/a><\/span><\/p>\n<h2><a href=\"https:\/\/aktassociates.com\/business-compliance\/tax-compliance\/tds-return-filing\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-2319\" src=\"https:\/\/aktassociates.com\/blog\/wp-content\/uploads\/2019\/10\/TDS-Return.png\" alt=\"TDS Return\" width=\"700\" height=\"150\" srcset=\"https:\/\/aktassociates.com\/blog\/wp-content\/uploads\/2019\/10\/TDS-Return.png 700w, https:\/\/aktassociates.com\/blog\/wp-content\/uploads\/2019\/10\/TDS-Return-300x64.png 300w, https:\/\/aktassociates.com\/blog\/wp-content\/uploads\/2019\/10\/TDS-Return-20x4.png 20w\" sizes=\"(max-width: 700px) 100vw, 700px\" \/><\/a><\/h2>\n<h2><span class=\"ez-toc-section\" id=\"Case_Studies\"><\/span><b>Case Studies<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><b> <\/b><span style=\"font-weight: 400;\">For better understanding, let\u2019s understand it with some simple cases in which the <\/span>payee is providing the contractual services or professional services to the payer<span style=\"font-weight: 400;\">:<\/span><\/p>\n<table style=\"height: 1449px;\" width=\"803\">\n<tbody>\n<tr>\n<td><strong>S.No.<\/strong><\/td>\n<td><strong>Payer<\/strong><\/td>\n<td><strong>Payee<\/strong><\/td>\n<td><strong>Consideration Per Annum<\/strong><\/td>\n<td><strong>TDS U\/s 194C\/194J<\/strong><\/td>\n<td><strong>TDS U\/s 194M<\/strong><\/td>\n<td><strong>Remarks<\/strong><\/td>\n<\/tr>\n<tr>\n<td>1<\/td>\n<td>Individual\/HUF<\/td>\n<td>Any Resident<\/td>\n<td>5,00,000<\/td>\n<td>\u2713<\/td>\n<td>\ud83d\uddf4<\/td>\n<td>The consideration amount is not more than Rs.50 Lakhs<\/td>\n<\/tr>\n<tr>\n<td>2<\/td>\n<td>Individual\/HUF<\/td>\n<td>Any Resident<\/td>\n<td>25,000<\/td>\n<td>\ud83d\uddf4<\/td>\n<td>\ud83d\uddf4<\/td>\n<td>Section 194C\/194J shall not be applicable since the consideration amount is within the limit for deduction of TDS<\/td>\n<\/tr>\n<tr>\n<td>3<\/td>\n<td>Individual\/HUF<\/td>\n<td>Non Resident<\/td>\n<td>52,00,000<\/td>\n<td>\ud83d\uddf4<\/td>\n<td>\ud83d\uddf4<\/td>\n<td>In this case, the payee was Non-Resident, hence section 195 shall be applied for deduction of TDS<\/td>\n<\/tr>\n<tr>\n<td>4<\/td>\n<td>Individual\/HUF<\/td>\n<td>Any Resident<\/td>\n<td>52,00,000<\/td>\n<td>\ud83d\uddf4<\/td>\n<td>\u2713<\/td>\n<td>With the assumption that such individual or HUF were not required to get audited their account, all condition of Section 194M are satisfied, hence the TDS shall be deducted under this section<\/td>\n<\/tr>\n<tr>\n<td>5<\/td>\n<td>Partnership Firm<\/td>\n<td>Any Resident<\/td>\n<td>52,00,000<\/td>\n<td>\u2713<\/td>\n<td>\ud83d\uddf4<\/td>\n<td>Since the payer is nor the individual neither the HUF, hence the TDS shall be deducted U\/s 194C\/194J and not under section 194M<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h2><span class=\"ez-toc-section\" id=\"Summary\"><\/span><b>Summary<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Section 194M shall <\/span>apply from 01.09.2019<span style=\"font-weight: 400;\"> when<\/span><\/p>\n<p><b>Payer:<\/b><span style=\"font-weight: 400;\"> Individual or HUF <\/span>(Not covered under section 194C or 194J)<\/p>\n<p><b>Payee:<\/b><span style=\"font-weight: 400;\"> Any Resident<\/span><\/p>\n<p><b>Services:<\/b><span style=\"font-weight: 400;\"> Contractual work or professional services<\/span><\/p>\n<p><b>Rate:<\/b><span style=\"font-weight: 400;\"> 5% of the amount credited or payment<\/span><\/p>\n<p><b>Consideration:<\/b><span style=\"font-weight: 400;\"> More than Rs.50 Lakhs<\/span><\/p>\n<p><b>Time:<\/b><span style=\"font-weight: 400;\"> At the time of credit or payment, whichever is earlier.\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Budget Introduction \u00a0In every new budget, the government makes certain amendments in the present law to pull out the loophole &#8230; <\/p>\n<p class=\"read-more-container\"><a title=\"Section 194M: TDS in Relation to Contract Services and Professional Services\" class=\"read-more button\" href=\"https:\/\/aktassociates.com\/blog\/section-194m-tds-in-relation-contract-professional-services\/#more-1925\">Read more<span class=\"screen-reader-text\">Section 194M: TDS in Relation to Contract Services and Professional Services<\/span><\/a><\/p>\n","protected":false},"author":4,"featured_media":1913,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"acf":[],"yoast_head":"<!-- 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