Section 194 M – TDS on Payment of Certain Sum by CERTAIN Individual/HUF

 Update :-
Union Budget 2019 –
 Which was presented by our Hon’ble Finance Minister Smt. Nirmala Sitharaman Ji.
 Which was obtained the Assent of our beloved President of India on 01st August 2019, Sri Ram
Nath Kovind Ji.
 Proposes to make it mandatory for Individuals and HUFs to deduct tax at source (TDS) on any
payment exceeding Rs 50 lakh per annum to contractors and professionals.
 Example: This would mean that if the total of payments to any single contractor for wedding
functions, house renovation or to a single professional during a financial year exceeds Rs 50
lakh then TDS @ 5% (20% in case of non-submission of PAN) would be deductible by the payer.
 Rule of Thumb: At the time of Credit of the sum or payment whichever is earlier.
 The provisions of newly inserted section 194M of the Income Tax Act, 1961 shall be effective
from 1st September 2019.
 General Doubt :-
 Since the above mentioned rule is already prevalent in the existing sections of TDS like 194C
for contractual payments, 194H for commission payments, 194J for professional charges etc.,
where is this section going to make a difference in?
 Difference is being made –
 The above mentioned sections (194 –C, H, J) (however insurance commission referred in
section 194D is not included) are applicable to all the persons (as defined in the Act) excluding
Individual/HUF who are not liable to get their accounts audited u/s 44AB of the Act.
 The Section 194M covers those persons who all are excluded in the aforementioned sections
(i.e. Individual/HUF who are not liable to get their accounts audited u/s 44AB of the Act).
 In Brief –

Type of payment Section under which TDS is deductible

Individual/HUF who are liable to Individual/HUF who are not
get their accounts audited liable to get their accounts
audited
Carrying out any work (which Section 194 C Section 194 M
includes supplying of labor for
carrying out any work) in
pursuance of any contract
Commissioner or brokerage Section 194 H Section 194 M
Fees for professional service Section 194 J Section 194 M

 Something to be noted/even appreciated :

 The individual / HUF requiring to get their account audited are already covered under
respective section 194C, section 194H and section 194J and hence they are not included here.
 The threshold limit is Rs. 50 lakhs (too big an amount).
 Further section 194M (2) states that the provisions of section 203A of the Income Tax Act, 1961
doesn’t apply to the Deductor. Meaning thereby that the Deductor liable to deduct TDS under
 194M is not mandatorily required to obtain TAN (Tax Deduction and Collection Account
Number).
 Author’s Analysis :

Govt. – Out of the Box –

 May be through this step, govt. may find out some cases of “Tax-Evasion”. Because TDS is not
all about paying the tax and claiming it back, it to establish the authenticity & veracity of the
income of a party through 26AS form.
 The threshold limit is Rs. 50 lakhs. So this amendment just doesn’t seem to be like a provision,
it’s a play against the tax evaders. Because for a person, in general (not under presumption
scheme) whose turnover/gross receipts does not exceed Rs. 1 Crore (i.e. not liable to tax audit
u/s 44AB) is neither likely no expected that a payment worth more than Rs. 50 lakhs is made to
a single party in a financial year.
 Due to the exemption(for deduction of TDS) provided upto now for those Individual/HUF who
are not liable to get their accounts audited, substantial amount by way of payments made by
individuals or HUFs in respect of contractual work or for professional service is escaping the
levy of TDS, leaving a loophole for possible tax evasion.
 To fix this loophole, the above section (194M) has been inserted by the Govt. & these steps are
part of the government's efforts to widen and deepen the income tax base.
However –
 There might also be some exceptional cases where it could happen that the whole of the
business of a person depends upon a single party. However the govt. shall consider the
genuineness of the transactions and will arrive at the conclusions. But they are not at all an
exception to this section.

“Rule is rule, rule for all”