TDS on Payments to Resident Contractors and Professionals

This document covers

1. Background: TDS on Resident Contractors and Professionals
2. What is Section 194M?
3. What is Form 26QD and How to file online?
4. What is Form 16D& Why you Care?

1. Background: TDS on payments to Resident Contractors and Professionals

For quick and efficient collection of taxes, the Income-tax Law has incorporated a system of deduction of tax at the point of generation of income. This system is called as “Tax Deducted at Source”, commonly known as TDS.

The Finance Act 2019 introduced TDS on Payments to Resident contractors and professionals at the rate of 5% where the amount or aggregate of such amounts paid to a resident in financial year exceeds Rs 50 lakhs

2. What is Section 194M?

1. Applicability: Individuals or HUF other than those who are required to deduct TDS u/s 194C, 194H or 194J are required to deduct TDS u/s 194M on the following amounts payable to a resident
   1. For carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract
   2. By way of commission or Brokerage
   3. By way of fees for professional services
2. Threshold Limit: TDS needs to be deducted if the amount or aggregate of the amounts paid in a financial year to a resident exceeds Rs 50,00,000
Example:

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Mr Krishna has purchased a property for residential purpose and he has given the Interior decoration services to Mr Lakshman for Rs 60 lakhs. In this case, Mr Krishna is required to deduct TDS u/s 194M

3. Rate of TDS: The rate of TDS u/s 194M is 5%
4. Time of deduction: The TDS needs to be deducted on the following times whichever is earlier.
   1. Credit of amount to the account of resident service provider (or)
   2. Payment of amount to resident service provider
5. Requirement of TAN: TAN is not required for deduction of TDS u/s 194M
6. TDS Return: The TDS deducted u/s 194M should be deposited to Government in Form 26QD(Challan cum Return)

For better understanding, learn more on @ Section 194M

3. What is Form 26QD and How to file online?

1. Form 26QD is a challan cum return statement for reporting the transactions liable to TDS on payments to resident contractors and professionals u/s 194M
2. Due Date: The Due date of filing Form 26QD is within 30 days from the end of month in which the tax deduction is made.
Example:

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Mr Krishna has paid Rs 60 lakhs to Mr Lakshman on Dec 15th 2022. He has deducted 5% TDS i.e.,3,00,000. He is required to file Form 26QD by Jan 30th 2023.

3. Form 26QD can be filed using https://eportal.incometax.gov.in
4. Required details for filing Form 26QD: The following are the required details for filing Form 26QD
   1. PAN and Name of the Payer (Deductor)
   2. PAN and Name of the Payee (Deductee)
   3. Address of both payer and payee
   4. Mobile No and email if of both payer and payee
   5. Nature of payment (Contract/commission or brokerage/ professional fee)
   6. Date of contract and total value of contract
   7. Date of payment and date of tax deduction
   8. Total amount paid and TDS
   9. If Non deduction or lower deduction of TDS is available. If available, certificate number is required
5. Form 26QD is organized in the following manner
   1. Taxpayer info
   2. Address
   3. Contract details
   4. Payment info

4. What is Form 16D & Why you Care?

1. Form 16D is the TDS certificate to be issued by the deductor to the deductee in respect of the tax deducted and deposited as TDS on rent under section 194M
2. Form 16D Consists of Name and Address of deductor and deductee, Total Amount paid, TDS deducted, challan paid details, certificate number.
3. Form 16D should be given by the deductor to deductee within 15 days from the date of filing form 26QD