Section 194M & 194N - Newly Introduced provisions of TDS

The Finance Bill, 2019 has introduced 2 new sections under TDS- Section 194M & 194N. These sections have been introduced with a view to discourage cash payment and encourage digital payment. Let's understand these two in simple language:-

Section 194M:-

• This section is applicable only to Individual & HUF.
• The uniqueness of this section is that this is applicable to Individual/HUF only if they are  NOT required to get their books of account audited under section 44AB of Income Tax Act, 1961.
• It is applicable when payment made to Resident Individual for carrying out any contractual work or providing any professional service and the total amount involved is more than Rs.50,00,000 in a financial year. 
• If the Individual/HUF are required to get their books of account audited under section 44AB of Income Tax then they will deduct TDS under section 194C & 194J for making similar nature of the payment.
• They are not required to get a Tax Deduction Account Number (TAN) for a tax deduction. They can deduct tax by quoting their Permanent Account Number (PAN) to the Government.
• This section also applies if the payment is made for personal purposes.
• Thus, the Government had reduced the scope of tax evasion as a major amount of payment made for contractual work & professional service was escaping the levy of TDS.
• The rate of tax deduction at source under this section is 5%.
• TDS amount will be deducted at the time of payment of the amount or at the time of credit in books whichever is earlier.

Section 194N:-

• This section is applicable only where the payer is Bank, Cooperative Bank or a Post Office.
• Generally, tax is deducted at source when it is earned by the recipient but surprisingly under Section 194N, the tax shall be deducted at source on Cash Withdrawals.
• It is applicable in case of cash withdrawals of more than 1 crore in a financial year.
• The limit of Rs 1 crore in a financial year is with respect to per bank or post office account and not a taxpayer’s individual account.
• If the payee withdraws a sum of money on regular intervals, the payer will have to deduct TDS from the amount, once the total sum withdrawn exceeds Rs 1 crore in a financial year. Further, the TDS will be done on the amount exceeding Rs 1 crore. For example, if a person withdraws Rs 98 lakh in the aggregate in the financial year and in the next withdrawal, an amount of Rs 3,50,000 is withdrawn, the TDS liability is only on the excess amount of Rs 1,50,000.
• The rate of TDS under this section is 2% on the cash payments/withdrawals of more than Rs 1 crore in a financial year. Thus, in the above example, TDS would be on Rs 1,50,000 at 2% i.e. Rs 3,000.

[Income Tax, GST, PF, ESI all tax compliance calender January 2020 Click here]

[Cash Transactions which are totally unsafe for you Read here] 

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[Disclaimer:-This article is being furnished for informational purposes only. We make every effort to use reliable & comprehensive information, but we do not represent that the contents of the article are accurate or complete.]