In Budget 2019, there were changes proposed to the Income Tax Act that require deduction of tax on payments made for any contractual or professional work.
The section 194M was introduced in the Income Tax law on account of a large amount of payment made towards contractual work or charged as professional fee, escaping the levy of TDS (tax deducted at source). To avoid tax evasion, individuals and HUFs (Hindu Undivided Families) that are not required to get their accounts audited, are now made to deduct tax on behalf of the contractor or professional and pay it to the government.
- "Payment of commission (not being insurance commission), brokerage, contractual fee, professional fee to a resident person by an Individual or a HUF who are not liable to deduct TDS under section 194C, 194H, or 194J," falls under section 194M.
- TDS needs to be deducted with effect from 1 September 2019.
- TDS is to be deducted when payments or sum credited exceeds Rs 50 lakh for a financial year.
- TDS is to be charged at 5 percent.
Rules on TDS Certificate
In a notification dated 18 November 2018, the CBDT (Central Board of Direct Taxes) issued rules on TDS to be deducted under section 194M:
- TDS deducted needs to be credited to the Central Government within 30 days from the end of the month in which the deduction was made. For example: If payment was made to the contractor on 22 November, you are required to credit the TDS amount to the government by 30 December.
- The amount paid to the government "shall be accompanied by a challan-cum-statement in Form No. 26QD."
- "every person responsible for deduction of tax under section 194M shall furnish the certificate of deduction of tax at source in Form No.16D to the payee within fifteen days from the due date for furnishing the challan-cum-statement in Form No.26QD under rule 31A after generating and downloading the same from the web portal specified by the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) or the person authorised by him."