TDS on payment to resident contractors and professionals under Sec 194M:

1. Introduced in 2019, Section 194M of the Income Tax Act extends the scope of the payments made by individuals and HUFs not subject to tax audit to resident contractors and professionals.

2. Note: As per Amendment made in Finance Act 2020, every person is required to deduct TDS if the turnover or gross receipts are more than Rs 1 crore in the case of business and Rs 50 Lakhs in the case of profession.

So Sec 194M is applicable if TDS is not required to be deducted, as above.

3. Applicable to whom?
Individuals: Any natural person not acting as part of a business entity. In the context of TDS under Section 194M, individual payers are required to deduct TDS if they pay more than INR 50 lakh in a financial year to a resident contractor or professional for certain services or work.

Hindu Undivided Families (HUFs): HUF is a separate entity under Indian tax law that constitutes all members of a Hindu family combining their resources as a joint family. HUFs who are not subject to tax audits but making payments more than INR 50 lakh in a year shall comply with the TDS provisions of Section 194M.

4. Rate of TDS:
The rate of TDS is 5% under Section 194M. This rate is fixed and is the same for all transactions subject to TDS under this section, whatever be the nature of the service or work provided.

5. The rate of TDS, if the payee does not furnish his PAN to the payer, shall be higher of the following: at the rate specified in the relevant provisions of the Act; or at the rate of 20%.

6. TDS certificate:
Upon deduction of TDS, the deductor has to issue a TDS certificate, Form 16D, to the payee (deductee).

7. Is TAN required for deducting under the section?
Normally, under the Income Tax law, a Tax Deduction Account Number (TAN) is required for entities that deduct tax at the source.
However, under Section 194M, individuals and HUFs not required to obtain TAN can deduct tax using their Permanent Account Number (PAN