Section 194M requires a person and/or a HUF to deduct tax at source. Individuals and HUFs in this situation should not be expected to have their books audited. If a company’s total turnover or receipts surpass Rs 1 crore, or if a professional’s receipts surpass Rs. 50 lakh, the books of accounts must be audited.

It is applicable whenever the total amount charged to a resident person in a financial year for doing any contracted work or delivering any professional service reaches Rs 50,00,000.

TDS deduction is available if they are eligible to have their books of accounts audited under Section 194C & 194J. Individuals and HUFs who are required to deduct TDS under Sections 194C (payment to a contractor) and 194J (payment on professional fees) are exempt from deducting tax at source under Section 194M.

Individuals or HUFs that are required to subtract tax will pay it to the government using only their PAN. It is not necessary to obtain a tax deduction account number (TAN) to subtract TDS.

section 194M

This provision would not apply to payments made to non-residents. The Finance Bill of 2019 includes Section 194M, regarding tax deductible at source on any amount paid by an individual or HUF to a contractor for personal purposes. As a result, this provision refers to both personal and company payments.

Must Read – What is Section 194C?

In the case described above, a person or HUF had no obligation to deduct tax at source prior to the implementation of this clause.

Individuals or HUFs carrying out a business or career (who were not audited) were often not deducting any tax at source, even though the charge was rendered for the benefit of their business or profession. Because of this provision, a significant portion of payments for contracted jobs and legal fees is excluded from TDS, allowing for tax evasion.

Who should deduct TDS under section 194M?

As per Section 194M, an individual who is an employee or a HUF and has to pay a resident for contractual work done or other professional service rendered must subtract tax at source.

According to the Union Budget 2019, every person or HUF paying a resident an amount beyond Rs 50,00,000 in a year for carrying out whatever job (along with the supply of labour) in any agreement or by means of fees for professional services provided during the FY must deduct TDS at a rate of 5%. From May 14, 2020, to March 31, 2021, the TDS average will be 3.75 per cent.

This section would go into force on 1/09/2019. Any fee rendered after such date, even though the contract occurred before, would be subject to TDS if the transaction crosses Rs 50,00,000.

TDS would be deducted on the earlier dates mentioned below.

  • At the moment the sum is credited.
  • At the time of cash transfer or the issuance of a check or draft.

TDS rate under Section 194M

If the total amount charged to a citizen in an FY reaches Rs 50,00,000, a TDS of 5% may be deducted under section 194M. For transactions between 14 May 2020 and 31 March 2021, the TDS rate is 3.75 percent.

If the deductee’s PAN isn’t really open, TDS would be deducted at a rate of 20%.