As a general rule, TDS is only required to be deducted by those businesses/professionals whose books are audited under Section 44AB.
However, to bring more people under the TDS net, there are certain amendments have been made to the above mentioned rule and in the following cases, TDS would be required to be deducted even by non-audit cases:-
- Payment of Rs. 50 Lakhs or above to Contractor/ Freelancer – Section 194M [Budget 2019]
- Payment of Rent of Rs. 50,000 per month or above – Section 194IB [Budget 2017]
- Payment of Rs. 50 Lakhs or above for purchase of property – Section 194 IA [Budget 2013]
- Any payment to NRI for any purpose – Section 195
Applicability of above exceptions
The first 3 exceptions are applicable to all:-
- Non-audit businesses/professionals
Thus, it is applicable to everyone except businesses/professionals who are required to get their audit done by a Chartered Accountant under Section 44AB.
The reason for bringing these transactions under the TDS net is to ensure that there are no loopholes left for evasion of taxes.
So as to reduce the compliance burden, the person making the above payments would not be required to apply for a TAN No i.e. Tax Deduction and Collection Account No. and would be able to deposit the TDS using his PAN No.
The 4th Section i.e. 195 is applicable to everyone i.e. individuals, HUF’s, Both audit as well as non-audit businesses.
These 4 sections have been explained in detail below.
1. Section 194M – TDS on payment above Rs. 50 Lakhs to Contractor / Professional
This section was introduced by Nirmala Sitharaman while announcing the Finance Act 2019 (No.2) and is applicable from 1st Sept 2019.
Under this Section 194M, TDS @ 5% is required to be deducted for payments made in respect of contractual work or professional service of above Rs. 50 Lakhs in a financial year.
This newly inserted Section 194M is only applicable to Individuals, HUF’s and non-audit cases.
For all audit cases, Section 194M would not be applicable and the existing provisions of TDS @ 1% under Section 194C for payment to contractors and TDS @ 10% under Section 194J for payment to professionals would remain applicable.
More details regarding the procedure for deduction of TDS and other details are expected to be announced soon.
2. Section 194IB – Payment of Rent above Rs. 50,000 per month
This Section was introduced in Budget 2017 by Arun Jaitley and is applicable since 1st June 2017.
Under this section 194IB, TDS @ 5% is required to be deducted on payment of above Rs. 50,000 per month.
This section is only applicable to Individuals, HUF’s and non-audit cases.
For all audit cases, Section 194IB would not be applicable and the existing provisions of TDS @ 10% under Section 194I for payment of rent would remain applicable.
TDS under Section 194IB is not required to be deducted on each payment and the total TDS for the whole year can be deducted when the payment for the last month of the year is being made. In case property is vacated during the year, the TDS should be deducted in the last month of tenancy.
3. Section 194IA – TDS on Property above Rs. 50 Lakhs
This section was introduced in Budget 2013 by P. Chidambaram and is applicable since 1st June 2013.
Under this Section 194IA, TDS @ 1% is required to be deducted on payment made for purchase of property above Rs. 50 Lakhs. This Section is applicable for payments made to residents only and is not applicable for payment made to a non-resident for purchase of immovable property.
This TDS is to be deducted for amount paid for purchase of any type of immovable property like Commercial or Residential or Land or Flat or any other type of immovable property except Agricultural Land.
Under this section, TDS @ 1% is required to be deducted on advance payments as well if the property transaction value is more than Rs. 50 Lakhs.
This TDS is required to be deposited within 30 days from the end of the month in which the payment has been made.
To understand more on TDS on property in detail along with the practical procedures and examples, kindly refer this link: TDS on Property @ 1% under Section 194IA
You may also refer the following video wherein the author of this article is explaining on NDTV on How TDS is to be deducted on purchase of property.
Other Relevant Points regarding all above 3 Sections
- It is important to note here that TDS would not be deducted on the GST portion and would only be deducted on the base amount paid.
- In case of default in deduction and payment of TDS, the govt will recover the TDS from the person who has made the payment.
- In case of delay in deposit of TDS, Interest and penalty would also be levied on late deposit.
- Application for Lower Deduction of TDS cannot be filed for TDS to be deducted under any of these sections i.e. Section 194M, Section 194IB & Section 194IA.
- TDS is required to be deducted irrespective of the actual gain or loss made by the person receiving the payment.
The above 3 sections are applicable when the payment is being made to a resident indian. In case the payment is being made to a NRI, the above sections will not apply.
In case of any payment to NRI, TDS is required to be deducted under Section 195 and the same has been discussed below.
4. Section 195: TDS on Payment to NRI
If any payment is being made to a NRI, TDS is also required in all such cases. In other words any payment (even of Rs. 1) for any purpose would attract TDS provisions. These provisions are applicable to all persons across India.
The rate of TDS shall be the tax rate in force and depends on the nature of payment made. Eg: Rent, Asset purchase, Bank Interest etc.
For the purpose of making payment to a NRI, the person making the payment is also required to obtain a TAN No.
In case the payment is being made to a NRI for the purpose of purchase of an immovable property, TDS would be required to be deducted as per the rates and procedure mentioned here – TDS on purchase of property from NRI.