Section 194M was inserted by Finance Act 2019 to bring under the radar the income earned by professional and contractor by providing services on B2C basis. Section 194M reads as under:
“(1) Any person, being an individual or a Hindu undivided family (other than those who are required to deduct income-tax as per the provisions of section 194C, section 194H or section 194J) responsible for paying any sum to any resident for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract, by way of commission (not being insurance commission referred to in section 194D) or brokerage or by way of fees for professional services during the financial year, shall, at the time of credit of such sum or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to five per cent of such sum as income-tax thereon:
Provided that no such deduction under this section shall be made if such sum or, as the case may be, aggregate of such sums, credited or paid to a resident during a financial year does not exceed fifty lakh rupees.
(2) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.
Explanation.—For the purposes of this section,—
(a) “contract” shall have the meaning assigned to it in clause (iii) of the Explanation to section 194C;
(b) “commission or brokerage” shall have the meaning assigned to it in clause (i) of the Explanation to section 194H;
(c) “professional services” shall have the meaning assigned to it in clause (a) of the Explanation to section 194J;
(d) “work” shall have the meaning assigned to it in clause (iv) of the Explanation to section 194C.”
Now let’s understand this in an easy way:
||Individual and HUF for expenses incurred for non business purpose
||Amount paid more than Rs. 50 lakh paid to a resident in a year
|Rate of TDS
|Types of expenses covered
||Contractor service, commission, professional service (with same meaning as provided in section 194C, 194H and 194J)
Now many people might be wondering will they have to take TAN number even if they are salaried employee and not liable to deduct any TDS?
Answer is No they will not have to apply for TAN number and can deduct TDS of above person using his PAN number.
The limit mentioned above is based on each person/ assessee and not one service. Also since the limit has been set high it wont be applicable to many person.
Let’s have a look at certain example of this section:
Example 1: You hire a contractor to construct a house for you and the total cost for such contract is Rs. 55 lakh. Earlier it used to be personal expense and you were not required to deduct TDS on it but now you will have to deduct TDS @5% on it.
Example 2: You take service of a lawyer to handle your personal family cases and he charges you 60 lakh as his fees for an year. In that case you will have to deduct TDS @5% on such payment of Rs. 60 lakh.
Example 3: You give a contract for a wedding to a wedding planner and he charges a fees of Rs. 1 crore. Now you need to deduct TDS @5% on such fees.
People might think what would be done if you don’t deduct TDS as in case of business expense 30% of such expense is disallowed and in this case you are not claiming any expense as it’s personal expense so what would be the penalty if TDS is found to be not deducted.
Firstly, I would like to tell you that it will be very much difficult for Income tax department for such defaults. However, if they find there are various penalty available with Income Tax department.
Interest and penalty for TDS default:
Some of the obvious one would be payment of interest u/s 201(1A) for non deduction and non payment of TDS.
Next you could be charged penalty u/s 271C for non deduction of TDS which would be an amount equal to TDS amount.
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