Section 194M of the Income Tax Act, 1961, mandates Tax Deducted at Source (TDS) on certain payments made by individuals or HUFs who are not liable for tax audits under Section 44AB. Below is a structured breakdown of its provisions:
1. Applicability of Section 194M
✅ Covered Payments (if aggregate exceeds ₹50 lakh/year):
- Contractual payments(e.g., freelancers, consultants, contractors).
- Commission/brokerage(excluding insurance commission under Section 194D).
- Professional fees(e.g., lawyers, doctors, architects).
❌ Exemptions:
- Payments covered under other TDS sections (e.g., rent under 194-IB, salary under 192).
- Payments to government entitiesor non-residents (covered under Section 195).
2. TDS Rate & Threshold
| PARAMETER | DETAILS |
| Rate (PAN Provided) | 5% |
| Rate (PAN Not Provided) | 20% (under Section 206AA) |
| Threshold | ₹50 lakh/year per payee (aggregate of all covered payments) |
Example:
- Total Payments to a Consultant: ₹60 lakh in a year.
- TDS (5%): ₹3 lakh → Net Payment: ₹57 lakh.
3. Who Deducts TDS?
- Individuals/HUFsnot liable for tax audit (i.e., business turnover ≤ ₹1Cr/professional receipts ≤ ₹50L).
- No TAN Required: Deductors can use their PANfor TDS compliance.
4. Compliance Requirements
- Deduction Timing: Earlier of paymentor credit to payee’s account.
- Deposit Deadline: By the 7th of the next month(March: April 30) via Challan 281.
- TDS Return: File Form 26Q
- TDS Certificate: Issue Form 16Ato the payee.
5. Penalties for Non-Compliance
- Late Deduction: Interest @ 1% per month.
- Late Payment: Interest @ 5% per month.
- Non-Filing: Penalty up to ₹1 lakh.
6. Key Points
🔹 5% TDS on payments > ₹50L/year to residents (for non-audited individuals/HUFs).
🔹 PAN Mandatory to avoid 20% deduction.
🔹 Simplified Compliance: No TAN required; use PAN for filings.
🔹 Exclusions: Rent (covered under 194-IB) and salary payments.
