Section 194M was introduced for situations where an individual or Hindu Undivided Family (HUF) makes a large payment to a resident contractor, professional, commission agent or broker but is not otherwise required to deduct TDS under the regular business TDS provisions. A common example is an individual constructing a house and paying more than ₹50 lakh to a contractor or architect during the year. Under the current rules,
TDS is generally applicable at 2% when the aggregate covered payment exceeds ₹50 lakh. From 1 April 2026, the Income Tax Act, 2025, has replaced the old Section 194M with the corresponding provision under Section 393(1), Table Sl. No. 6(ii). Sharda Associates helps individuals, HUFs and businesses identify TDS applicability, calculate deductions and complete the related filing correctly.
Why Was Section 194M Introduced?
Normally, businesses that cross prescribed turnover limits are already required to deduct TDS on contractor payments, professional fees and commissions under the regular TDS provisions.
But consider a person who does not run a large business at all.
Suppose an individual builds a personal house and hires a contractor for ₹65 lakh. The individual may not otherwise be a regular TDS deductor, but the payment is significant.
Section 194M was designed to bring such high-value payments within the TDS system without forcing the individual or HUF to comply with the entire regular TDS framework.
That is why the provision has a much higher ₹50 lakh annual threshold and allows compliance using PAN instead of requiring the person to obtain a TAN merely for this transaction.
Who Has to Deduct TDS?
The provision applies to an individual or HUF who is not already required to deduct TDS on the same type of payment under the regular contractor, professional fee, or commission provisions.
This distinction matters.
For example, an individual carrying on a sufficiently large business may already come within the normal TDS provisions. In that situation, the payment may be governed by the regular contractor or professional TDS rule rather than this special ₹50 lakh provision.
Section 194M-type compliance is particularly relevant to individuals and HUFs who would otherwise fall outside those regular provisions.
It can also apply even where the payment relates to a personal transaction, such as construction or renovation of a residential property, provided the other conditions are satisfied.
Which Payments Are Covered?
The provision is broader than contractor payments alone.
It covers payments to a resident for contractual work; professional services; commission other than specified insurance commission; and brokerage.
For example, an individual may need to examine this provision when making a large payment to a building contractor for constructing a house.
A substantial professional fee paid to an architect, consultant or another covered professional can also require review.
Similarly, high-value brokerage or commission paid by an individual or HUF can fall within the provision where the applicable annual threshold is crossed.
The important point is to identify the real nature of the payment rather than relying only on the description appearing on an invoice.
What Is the ₹50 Lakh Threshold?
TDS becomes relevant where the amount or aggregate of covered amounts exceeds ₹50 lakh during the tax year.
The aggregate rule is particularly important.
Suppose an individual makes four payments to the same contractor:
₹15 lakh in May
₹15 lakh in August
₹15 lakh in November
₹15 lakh in February
No single payment exceeds ₹50 lakh.
However, the total payment is ₹60 lakh.
The transaction cannot be kept outside the provision simply because each installment is individually below ₹50 lakh.
Another important point is that ₹50 lakh should not be treated like a basic exemption on which TDS is never deducted.
Where the aggregate covered amount exceeds the threshold, the law provides for deduction on the entire applicable amount, rather than only the portion above ₹50 lakh.
So, for a qualifying ₹60 lakh payment, the calculation should not simply be made on ₹10 lakh.
What Is the TDS Rate?
The current TDS rate is 2%.
Suppose an individual is required to deduct tax on a qualifying payment of ₹60 lakh.
At 2%, the TDS would be:
₹6,000,000 × 2% = ₹120,000
The balance is paid to the contractor or professional, while the deducted tax has to be deposited and reported according to the prescribed process.
A valid PAN of the recipient should also be obtained because an incorrect or invalid PAN can create higher-rate and tax-credit problems.
When Should TDS Be Deducted?
TDS is generally triggered at the earlier of credit or payment.
This means you should not always wait until money is actually transferred from the bank.
Suppose an individual records a payable amount to a professional on 25 August but pays the amount on 10 September.
Where the TDS provision is otherwise applicable, the earlier event—credit in August—becomes relevant for determining when tax should be deducted.
This becomes especially important where payments are made in stages over several months.
A Practical Example: Building Your Own House
Suppose Mr. A is a salaried person and does not carry on a business requiring regular TDS compliance.
He hires a resident contractor to construct his house for ₹70 lakh.
Because the aggregate contractual payment exceeds ₹50 lakh, the special TDS provision for an individual needs to be considered.
Mr. A cannot simply say
“I am not a businessman, so TDS does not apply to me.”
That is precisely the type of high-value individual payment for which this special rule is relevant.
At the same time, if the total eligible payment were only ₹45 lakh during the relevant year and no other covered amount caused the threshold to be crossed, the ₹50 lakh condition would not be met under this provision.
Do You Need a TAN?
One of the practical advantages of this provision is that the individual or HUF does not need to obtain TAN merely for making this deduction.
Compliance can be completed using the deductor’s PAN.
This is different from regular business TDS compliance, where TAN is commonly required.
Therefore, someone making a one-time high-value contractor or professional payment does not have to create a complete regular TDS setup solely because this provision applies.
Important Change From 1 April 2026
This is particularly important for anyone reading older articles about Section 194M.
Up to 31 March 2026, the applicable provision was Section 194M of the Income-tax Act, 1961.
From 1 April 2026, the Income Tax Act, 2025 came into force.
The corresponding rule is now contained in:
Section 393(1), Table Sl. No. 6(ii)
The basic ₹50 lakh threshold and 2% TDS rate have been retained.
Therefore, people may continue searching for “Section 194M” because that is the familiar name, but current transactions should be reported using the new statutory framework.
Which law applies depends on the date on which the TDS event arises.
If the relevant credit or payment occurred on or before 31 March 2026, the old Act applies.
If the relevant credit or payment occurs from 1 April 2026 onwards, the new Act applies.
Form 26QD or Form 141: What Should You File in 2026?
This is another important 2026 change.
Under old Section 194M, taxpayers used Form 26QD as the challan-cum-statement for deducting and depositing the tax.
For transactions governed by the new Income Tax Act from Tax Year 2026-27 onwards, Forms 26QB, 26QC, 26QD, and 26QE have been consolidated into a new Form 141.
For the payment corresponding to old Section 194M, the individual or HUF uses:
Form 141 – Schedule C
Schedule C specifically covers payments to resident contractors or professionals falling under Section 393(1), Table Sl. No. 6(ii).
So if you are dealing with a payment arising after 1 April 2026, blindly following an old article telling you to file only Form 26QD can lead to incorrect compliance.
What Is the Due Date for Form 141?
For current transactions, Form 141 must generally be filed within 30 days from the end of the month in which TDS is deducted.
The tax payment is made electronically along with the filing.
For example, if tax is deducted in September, the 30-day filing period is counted from the end of September.
A separate regular quarterly TDS return is not required merely for this type of one-off special transaction.
The form is designed to combine the reporting and payment process.
After successful processing, the relevant TDS certificate can also be generated through the prescribed system.
What Happens if You Miss the TDS?
Ignoring the provision can create more than just a requirement to pay the original tax later.
Failure to deduct or deposit tax within the prescribed timeline can lead to interest, late-filing consequences and other proceedings under the applicable tax law.
Where the payment relates to a business expense, TDS non-compliance can also have consequences for deduction of the expenditure while computing business income.
Therefore, a high-value contractor or professional payment should ideally be checked before the final payment is released, rather than several months later during ITR filing.
Common Mistakes People Make With Section 194M
One of the most common mistakes is believing that TDS applies only to businesses.
Another is checking every invoice individually and ignoring the total amount paid during the year.
Some taxpayers also incorrectly deduct 2% only on the portion above ₹50 lakh, even though the threshold determines applicability and is not simply an exemption for the first ₹50 lakh.
In 2026, another common mistake is likely to be continuing to use the old Section 194M and Form 26QD references for transactions that actually fall under the new Act.
The safest approach is to check the date, nature of payment, aggregate amount and status of the payer before deciding the TDS treatment.
Conclusion
Section 194M was created so that large contractor, professional, commission and brokerage payments made by individuals and HUFs do not escape TDS merely because the payer is not otherwise a regular TDS deductor.
The practical rules are straightforward once the transaction is identified correctly: check whether the recipient is a resident, determine whether the payment falls within the covered category, calculate the annual aggregate, and examine whether it exceeds ₹50 lakh.
For current transactions, also remember the important 1 April 2026 transition. What was popularly known as Section 194M is now covered under Section 393(1), Table Sl.
Frequently Asked Questions
Q1. When do individuals and HUFs qualify for the special TDS provision?
It usually applies when a resident contractor, professional, commission agent, or broker receives covered payments from an individual or HUF and the total amount exceeds ₹50 lakh during the tax year.
Q2. Does a person who does not own a business have to pay TDS?
Indeed. Even if the person is not otherwise required to deduct regular business TDS, this unique provision may apply to a qualified high-value personal payment, such as ₹70 lakh given to a resident house-construction contractor.
Q3. For covered payments, what is the TDS rate?
The rate is 2% at the moment. The TDS would be ₹1.20 lakh if the qualifying aggregate payment was ₹60 lakh.
Q4. Does TDS only apply to amounts over ₹50 lakh?
No. TDS is typically computed on the total applicable amount, not only the amount over ₹50 lakh, if the applicable aggregate payment reaches ₹50 lakh.
Q5. Do payments made to the same contractor add up?
Indeed. The total covered payments made during the tax year are taken into account by the ₹50 lakh test. Therefore, a number of separate installments taken together can surpass the threshold.
Q6. Does this TDS deduction require TAN?
No, in order to make this particular deduction, a person or HUF does not need to obtain a TAN. The deductor’s PAN can be used to finish compliance.
Q7. When is it appropriate to deduct TDS?
In most cases, TDS is initiated at the time of credit or payment. Therefore, before taking into account the deduction requirement, taxpayers should not automatically wait until the money is actually remitted.
Q8. Since April 1, 2026, what has changed?
The Income Tax Act, 2025’s Section 393(1), Table Sl. No. 6(ii) superseded the previous Section 194M structure as of April 1, 2026. The 2% rate and the ₹50 lakh barrier are still in place.
Q9. As of April 1, 2026, which form is used for these payments?
Instead of continuing to use the outdated Form 26QD procedure, the relevant compliance for transactions covered by the new Act from Tax Year 2026–2027 is through Form 141–Schedule C.