Even those not audited must deduct TDS if total payment exceeds Rs 50 lakh

The Ministry of Finance recently notified Form 26QD for TDS (tax deducted at source) return and Form 16D for TDS certificate under Sections 194M and 194N of the Income-Tax (I-T) Act. Budget 2019 had introduced two new Sections — 194M and 194N — for the purpose of TDS that became applicable from September 1, 2019. However, there was no clarity on the procedure for complying with these Sections. The Ministry of Finance has dealt with this issue through a notification dated November 18, 2019.

Earlier, only individuals and Hindu Undivided Families (HUFs) subject to tax audit were required to deduct tax on contractual, professional fees, brokerage and commission payments made to a resident. Personal payments and businesses not subject to audit were out of its purview till September 1, 2019.

Says Ashok Shah, senior partner, NA Shah Associates LLP: “According to the newly inserted Section 194M, any individual or HUF, which is not subject to a tax audit, is also required to deduct and pay tax on these payments at the rate of 5 per cent.”

This notification will impact many. According to Sudhir Kaushik, chartered accountant, co-founder, and CFO, TaxSpanner, “Those paying more than Rs 50 lakh during a financial year for a contract, professional fee or commission, even if it is not for business purpose, but for, say, getting a house or floor constructed by a building contractor, or paying an architect fee for personal use, will have to deduct and deposit TDS.”

The liability to deduct tax gets triggered when the amount paid to a resident, or even the aggregate of such amounts, exceeds Rs 50 lakh. The time limit for depositing TDS is 30 days from the end of the month in which tax was deducted.

According to Suresh Surana, founder, RSM Astute Consulting Group, this payment would be made using the newly notified Form 26QD. This is a challan-cum-statement, which means that there exists no further liability on the deductor to separately file a statement providing other details.

Says Shah: “The TDS certificate in Form 16D is to be issued to the payee within 15 days of furnishing Form 26QD. However, since the Section was effective since September, the consequences of delayed payment on account of challans not being notified are not clear. In the absence of online forms, it can be assumed that the deductors can, for the time being, use manual forms.”

A statement of return in Form 26Q will also have to be filed if the deductor is required to deduct TDS under Section 194N. To encourage digital payments and discourage cash payments, Union Budget 2019 had introduced Section 194N, which stipulated TDS at 2 per cent on cash withdrawals exceeding Rs 1 crore during the financial year with effect from September 1, 2019.

Says Kaushik: “There is a loophole in this provision. The limit of Rs 1 crore is per bank/co-operative bank/post office. This means one can withdraw Rs 10 crore by withdrawing from 10 accounts with different banks.”

Also, clarity is awaited from the I-T department on whether withdrawals through bearer cheques will also be included, while computing the limit of Rs 1 crore.

Sec 194M fine print you should be aware of 

• Need PAN only for depositing TDS. TAN not required

• TDS will be deducted on payments made after September 1, 2019, even if agreement was made earlier

• Deduct TDS at the time of credit or payment, whichever is earlier

• Penalty for late payment of TDS is 1 per cent or 1.5 per cent, depending on the reason  

• Professional work includes professional fees, technical fees, remuneration paid to director excluding salary, royalty, and payment in the form of non-compete fees or fees paid not to share any technical knowledge

Source: Taxspanner.com